![]() In the area of commercial multifamily real estate, choosing a quality market is one of the most crucial first steps an investor can take. However, the work doesn’t stop there. Not all segments of a market are equal, and investors should work to find the best possible submarkets. In order to determine the quality of a submarket, investors often start by looking at crime rates within a given market. In addition to calling local precincts and using websites such as SpotCrime.com, investors can look at relative crime rates compared with the rest of a given market. Submarkets with crime rates in the top 50 percent regularly underperform in areas such as rentability, eviction rates, and rent growth. In addition, investors can assess the value of a submarket by looking at its proximity to retail, entertainment, and jobs. While it may be obvious to analyze a property’s proximity to retail destinations, it is also important to match asset quality to the quality of retail in the area. Owning a lower-grade asset in a higher-grade market can produce significant returns on investment, but the opposite situation can result in an underperforming asset.
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![]() According to a February 2016 report published by the National Association of Realtors (NAR), commercial real estate markets appear poised to continue recent growth trends throughout the first half of 2016. In the fourth quarter of 2015, small markets experienced a leasing rate of 2.5 percent, a decrease in office vacancies of 14.3 percent, and a decline in retail vacancies of 12.9 percent. Large commercial real estate markets witnessed a similar increase, with industrial sales posting a 54 percent increase in year-over-year transaction volume. The NAR expects vacancy rates to continue their decline and commercial fundamentals to increase steadily throughout the first quarter of 2016. With the unemployment rate expected to dip well below 5 percent in 2016, office vacancies are expected to decrease to 13.4 percent by the end of the year. In light of fluctuations in the global financial markets, commercial real estate will likely maintain its status as an attractive investment opportunity, even in the face of low cap rates and rising interest rates. |
AuthorAn experienced real estate investor and co-founder of 37th Parallel Properties in Richmond, Virginia, Chad Doty has established himself as a leader in commercial multifamily real estate. Archives
January 2017
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