The Pros and Cons of Investing in Commercial Real Estate in 2021
Commercial real estate has been one of the many sectors affected by the COVID-19 pandemic. Since last year, with many businesses closing and opting for digital modernization, the industry has been unpredictable. Residential real estate, on the other hand, has managed to keep a similar demand-supply level in general. However, the new year brings new hope to the commercial side of the story, and that’s what we’re going to discuss here.
I am Ofir Bar, an angel investor with years of experience in several industries such as real estate and digital marketing. With my expertise, I’ll share what I know about the positives and negatives of commercial real estate investing in 2021. I hope my advice will assist you in your decision making process, regarding your investment portfolio.
Pros of Commercial Real Estate
Large Prospective Income — Commercial real estate has been one of the most profitable investments for a few good years now, for many reasons. True, the pandemic has brought it to a certain slowdown, mainly because businesses were closing down without being replaced.
However, we’re slowly recovering from that period, as financial activity is starting to seem like a routine once again. In addition, sub-sectors like hotels and malls are lessening their preventive measures, opening more room for profitable opportunities to come in.
This slow recovery is a good sign that several businesses are coming back and wanting to have physical stores once more. Besides, not all subsectors of commercial real estate had experienced this sharp decline. Warehouses, for example, were naturally blooming in the past year, as well as pharmacies and grocery stores.
Additionally, 2021 is the perfect time to add a few more commercial properties to your portfolio. Retail and office prices, for example, saw a decline of roughly 5% and 10%. These numbers are unusually low, but that’s what makes it much more affordable — and, of course, attractive.
Limited Operation Hours — As the property owner, you don’t have to stay and watch the property every day. You’ll have staff that can oversee the whole place for you. What you’ll do more as the investor is monitor the numbers going in and out. It’s much more stable and laid back than other investments because all you’ll have to do is mind the numbers.
Cons of Commercial Real Estate
Large Initial Investment — Despite prices being relatively low at the moment, commercial real estate is still not cheap, and that ‘s an understatement. You’ll need a large initial budget to get the wheels going, or a mortgage plan for the long term.
Other than that, time will also be something you’re going to have to spend a lot of. You’ll need to run certain documents, and depending on conditions, it might take you a lot of time to get full ownership.
Underlying Risk — We still have a lot to learn about this virus spreading, and it’s too early to say that we’ve eliminated its risk despite the vaccines we have now. Some of them are mutating, which is a risk for the recuperation of this market. That’s why uncertainty is still a substantial factor here, and will probably be so for the next few years.
In another perspective, commercial properties are more prone to physical damage, with people coming in almost every day. If you’re not prepared to face these damages and their costs, then commercial real estate might not be for you. Insurance can help you out with that, but once again, this does not come for free and should be a part of your ‘cost-benefit’ chart.
