In a couple of my earlier blog posts: “Five key benefits of commercial real estate investing” and “Mainstream media’s obsession with the equities market” I discussed why commercial real estate is a viable investment vehicle. It is surprising to some that in spite of the current tepid economy, our demand exceeds available product and is causing compression of some cap rates. There are a few reasons for this…let me explain.
Need to qualify demand
It is important to emphasize that the strong demand exists for investment real estate. When I am asked how our market is I always need to provide an answer that does not generalize.
We still have vacancy in the office and industrial sectors that has been sitting for a while. It is expected that it could take some time yet to absorb that oversupply.
It does not mean our entire investment market is strong
Although demand is strong, investors are cautious. If it is an office or industrial property with significant vacancy, it will likely be looked over.
If, however, the tenant base is relatively strong with reasonable remaining lease terms in a good location with a clean environmental history we can sell it.
Interest rates are a major factor
Obviously, low capitalization rates are likely to exist only within a low interest rate environment. I made a decision many years ago to not try and predict at any given time which direction interest rates are headed.
There does seem to be a consensus among economists that rates are unlikely to rise significantly in the near term. That tells us that Saskatchewan commercial real estate investment demand could stay strong.
What are the alternatives?
I ask you that question. Where do you have confidence that you can place your hard earned money and see a reasonable return?
We see much volatility in equities and dismal returns from GIC’s and bonds. When it comes to investing there is no such thing as a sure thing but diversity is the key to balanced risk.
A great time to sell
So what’s my point here? If you’ve have been considering selling your piece of “A” or “B” commercial real estate why not let us provide you with an estimated market value.
You might be surprised how much equity you have accumulated. We always advise that you assess your situation fully before deciding to sell.
Some questions to ask yourself: what are the after tax net proceeds; is there a mortgage payout penalty; given my age and tolerance for risk, where is best place to direct my sale proceeds?
Posted by Barry Stuart