It's been a crazy year for real estate, and that isn't likely to change anytime soon.
One of the most unexpected developments has been the excitement and resiliency of the commercial real estate market. With many offices still closed or operating with fewer in-person staff, you might expect to find commercial real estate developers updating their resumes and offering each other shoulders to cry on. Instead, they're downright optimistic. So what do they know that the rest of us don't?
1. Real Estate is always a good investment, especially now.
The federal government's efforts to protect the economy have kept landlords from missing rent payments, and banks have shown delinquent property owners some grace instead of quickly pursuing foreclosures. Finally, wealthy people mostly stayed wealthy despite the pandemic, but they had fewer options for spending their money. Many chose to invest, and when they invested in stocks and bonds, they drove up the investment market – and that made commercial real estate look cheap in comparison.
2. Buy land; they aren't making more of it.
But, those same federal government efforts that protected people's bank accounts also led to fears about inflation. Now, many economists are voicing fears about inflation. With the value of money in doubt, tangible assets like real property become an attractive investment, especially when leases include clauses that say that rent can increase to keep pace with inflation. Investors see investments in commercial property as a way to protect themselves against sharp spikes in inflation.
3. 1 + 2 = 3
Meaning, because (point #1) commercial real estate is an economic investment, and (#2) because it's a safe investment during a period of potential inflation, we get (#3) large investors (think: pension funds) feel compelled to buy commercial real estate to balance out their portfolios, in case inflation rises and their other investments lose value. When large investors buy more, the demand (and the price) of commercial real estate rises. That means an investment today will be worth even more tomorrow, and that makes commercial real estate even more popular.
If you're a commercial real estate developer or investor looking to take advantage of this unique period in the economy, we'd love to talk to you. Monachan Law can handle all of your commercial real estate closing needs. Contact us today.