Is Commercial Real Estate in Trouble Due to COVID-19?

Is commercial real estate in trouble? When state governments started closing their economies during March 2020, people hoped that the disruption would only last a few weeks. Continued outbreaks made it obvious that businesses faced serious concerns that could last more than a year. Many of them worried about whether they could survive the pandemic. In fact, many of them did not. For some, that makes now the perfect time to invest in real estate.

COVID-19 Has Destroyed Much of the Service Industry

COVID-19’s impact on commercial real estate prices looks straightforward at first—it destroyed restaurants and retail stores, taking commercial real estate prices with them. Yelp says that about 163,000 of the businesses listed on its site went out of business. About 98,000 of them will not return even after the pandemic ends. Restaurants account for most of the closures.

Considering that the restaurant industry employs approximately 15.6 million people, closing businesses also means an increase in unemployment. When businesses in the service industry shutter their doors, the effects ripple through the whole economy.

Failing Business Drags Down Commercial Real Estate Prices

COVID’s impact on commercial real estate prices should alarm you if you currently own property. More likely than not, some of your tenants have gone out of business. To make matters worse, few entrepreneurs want to risk opening new businesses during a pandemic. With fewer people competing for space, commercial property market trends have almost certainly cost you money over the last year.

Make no mistake, COVID-19 will devastate commercial property trends in some areas. Some analysts predict that the value of retail space will not return to its pre-COVID price until 2024. Offices and apartments should return to their pre-COVID values by the beginning of 2022. Industrial real estate prices have actually risen during the pandemic, a trend that will likely continue for at least the next five years.

The commercial real estate forecast for 2021 doesn’t look better than the situation that started in 2020. Property values may actually fall further before they increase. Expect tough times to continue for anyone holding commercial property.

Lower Commercial Real Estate Prices Create Opportunities for Investors

Every downturn that hurts someone creates an opportunity for someone else. The real estate industry shares some similarities with the stock market. A good commercial real estate investment comes at a low price. The less you spend on the property, the more you can earn by developing, leasing, or selling it. It’s a harsh way to view the world, but it’s also an economic reality that investors ignore at their peril.

As COVID-19 real estate prices fall, look for real estate investment opportunities. It makes sense to buy properties when the current owners feel desperate to sell. As long as you can afford to hold on to the property without using it to generate income, buying commercial real estate now makes a lot of sense.

You don’t necessarily have to purchase real estate with cash to take advantage of COVID-19 real estate trends. Many banks also feel somewhat desperate to make money from commercial loans. With fewer people starting businesses, banks are eager to lend to anyone with a solid financial profile. Commercial loan rates will probably fall before they rise.

Commercial real estate loans usually have interest rates between 5% and 9%. If you can convince a lender that you can afford to make payments during the economic downturn—essentially meaning that you can afford to make payments without earning money from the property—you should find that banks will give you the lowest possible rates to help you buy real estate.

Some Cities Offer More Opportunities Than Others

You cannot look at the commercial real estate industry as a whole. It has pockets of success and failure. A city that struggles through the pandemic has a good chance of rebuilding its economy through 2021 and 2022. As that happens, you can attract tenants and charge higher rent for your commercial spaces.

Unfortunately, some towns will not survive. As their retail centers and restaurants close one by one, people will leave the area to find work elsewhere. If that happens, a town’s economy could collapse. Every investment opportunity comes with a risk. This is the risk of investing in commercial real estate during the COVID-19 pandemic. Choosing the wrong location could mean that you lose everything you invested in the property.

Use Predictive Analytics to Focus on Successful Investment Opportunities

So, is commercial real estate in trouble? Every investor needs to look at the current real estate market with clear eyes. There are opportunities and challenges. Knowing how to tell the difference will determine who makes money from commercial real estate trends.

Predictive analytics can help you make informed choices. With predictive analytics, you can focus on properties expected to go on the market soon. You don’t have to wait for the owner to advertise the sale. Instead, you can target off-market properties to get the best price.

Many owners don’t want to go through the arduous process of courting offers from potential buyers. They just want to recoup some money and stop losing revenue. Buying from them helps you make more money and protects them from losing money. The seller may not enjoy letting go of the property, but it’s a financial win-win.

Join ProspectNow to Keep Up With Emerging Trends in Commercial Real Estate

ProspectNow gives you the easiest way to keep up with emerging commercial property trends and target properties that fit your portfolio. As a member, you can search a database that includes 40 million apartment and commercial properties. You can even narrow your search by filtering for property characteristics, properties in pre-foreclosure, and real estate that owners likely want to sell.

Buying real estate during COVID-19 means that you have to accept more risk. It also means that you could make a lot of money. Get started with ProspectNow so you can stack the odds in your favor. The data you can find on our site is much more expensive on competitor sites. We’ve been helping agents, brokers, and others just like you since 2008 find more leads, close more deals, and make more money.