According to the Society of Industrial and Office REALTORS?? (SIOR) most recent Commercial Real Estate Index (for Q2 2012), which looks at information gathered from its members and measures ten variables related to the U.S. industrial and office markets, there are mixed results across the country. But the continued slow economy definitely ?has spilled over into industrial and office markets.??
This is certainly true in the Northeast, which has some of the lowest levels of leasing activity according to the index.?
?Both asking rents and vacancy rates are closing in on historical averages, with vacancy rates lower than they were a year ago. Development activity remains low and sublease space is declining,? reported the SIOR.
These current statistics bring to mind two of my most important pieces of real estate advice:
One:? You make money when you buy, and this is a good time to buy
Down times such as these are a great time to analyze and seize the right buying opportunities. Most investors understand that economic cycles occur and a business downturn only lasts so long, and then values increase once more.
Fully appreciate that you make your money when you buy, and buying when the market is down makes you even more money.
It?s important to evaluate a property correctly to determine what the potential is if you?re redeveloping or repositioning it in the market. It?s also important to reflect carefully on how you can enhance a property in a way that perhaps others can?t envision.
Consider the future income stream you can realize through the process from renovations and repairs through to lease up. Everything is about the future income of that building as well as the future value when you sell it.? The same is also true for a vacant parcel of land, with regard to determining a higher and better use for the property at acceptable financial returns.
Two: Leasing may be an attractive option
In bad economic times, leasing is an attractive option for a number of reasons.? Since it?s more difficult to gain access to capital, in dealing with banks you might be able to acquire only a certain amount of funding, and you won?t want to sink that capital completely into purchasing. Leasing is virtually 100 percent financing, freeing working capital for other business uses.
During such times, you most likely will be able to increase the value of your investment more through expanding your business than with any potential increase in property value.? If you lease, your entire rental payment is tax deductible, whereas if you buy real estate, you cannot depreciate the land, only the improvements on your land.
If you lease an existing building, it is almost always immediately available. Additionally, you avoid much of the development process and its related issues of zoning, permits, codes, fees, etc.
So, as with every challenging set of circumstances, there is always the silver lining if you look for it. Right now, that silver lining could be to purchase or lease a new property.
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Lin Good, CCIM, SIOR, Senior Vice President, Brokerage Services
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