Commercial real estate can be a smart investment for those with liquid capital. Unlike residential properties, which may have tenants calling at 2:00 in the morning because they locked themselves out, commercial properties can be a more hands-off source of revenue. The leases last for longer, and landlords can sometimes make tenants at least partially responsible for certain maintenance obligations.
However, the demand for commercial properties and the prices that they command can shift much more rapidly than demand and costs in the residential sector. There is always demand for housing, but people aren’t always in a position to start new businesses or expand existing ones. Some retail rentals might remain vacant for months in between tenants when the economy is weak.
Office space can also be difficult to rent out in many markets. With more industries embracing work-from-home arrangements are offering hybrid models for employees who want flexibility, the demand for office space has seen a significant drop. Prices for commercial office space may be lower because of the reduced demand on the rental market. Is it a financial mistake to acquire or retain commercial office space to rent to other businesses?
Every investment opportunity is unique
Although some businesses have pivoted away from in-person work or have reduced the in-person hours required from workers, many other companies still enforce the standard business week. There is little indication that the average employer intends to fully do away with in-person work arrangements.
Therefore, there should still be some demand for rented commercial space even if the degree of demand decreases somewhat. Particularly if landlords find properties in high-demand areas or for affordable prices, retaining or acquiring commercial office space can still be a smart business move.
With the right connections and marketing, a commercial landlord can still potentially find business tenants who require commercial space in which to operate. They may be able to increase their chances of securing tenants by offering flexible lease terms including single-year leases or even month-to-month arrangements for startup operations.
There is also the possibility of redeveloping unused office space. Landlords could potentially seek a zoning variance or change that allows them to convert unused office space into residential units. They can be either condominiums purchased by new owners or rental units. Both scenarios offer an opportunity for a significant return on the investment made.
Landlords who currently own office space may want to reconsider how they manage and lease those properties. Expanding businesses that acquire commercial properties may want to consider office buildings offered at competitive prices or in areas where redevelopment might be an opportunity.
Thinking outside of the box can lead to better returns on real estate investments. Landlords and company executives often benefit from coming up with creative solutions when the markets for real property and commercial space shift.