21 Reasons to Invest in the US Commercial Property Market
January 20th, 2014 by Diane Moore
Tie ups between foreign investors and real estate investment managers are anticipated to grow rapidly in the coming days, as investors across the globe are chasing the commercial real estate market in the US. South Koreans, Singaporeans, Norwegians, Canadians and Israelis are speeding up the purchases of US real estate as the rebounding prices and growing economy are luring yield-hungry purchasers.
So what’s the reason behind these investors pumping money into the US market?
Let’s explore it within 21 reasons of investing in US commercial property market.
21. A Buyer’s Market
The prices of commercial properties in the US are currently at rock bottom-30% down from the national peak, which is therefore the best time for an investment.
20. Rebounding Prices
The demand for high-quality properties helped in the rise of commercial real estate prices in April, which was above the record of August 2007, according to California-based research firm, Green Street Advisors Inc. This is also due to improved credit quality and rebounding prices of real estate. The US banks in 2013 had approximated $ 991.2 billion in total commercial real estate loans as of 30th of June. This was a growth of 3.3% compared to 2012, according to research company SNL Financial.
19. Great Opportunities
The US heads the list when it comes to providing opportunities for capital appreciation. A survey conducted in Q4 2012 among the Association of Foreign Investors in Real Estate (AFIRE), found 55% of respondents agreeing to the fact that the US is a strong country for capital appreciation. The average capitalization rate (a measurement of investment yield) for all commercial property sectors was 6.78% in Q1 2013, according to Real Capital.
18. Steadily Increasing Demand
The commercial real estate market in the US has been witnessing a steadily increasing demand, especially from non US investors, according to Max Swango, director of Invesco Real Estate from Dallas. This interest is shown by investors from Europe, Asia and the Middle East.
17. Commercial Real Estate Market Is Gradually Improving
The various sectors of commercial real estate in the US are showing a gradual improvement, according to the National Association of Realtors (NAR). The vacancy rates by the end of 2013 were dropped by 1% in the office sector, 0.2% in retail, 0.1% in multifamily and 0.2% in retail. This improvement has given a new leash of life to commercial property investments in the country.
16. Real Estate Prices Are Skyrocketing in other Countries
With the skyrocketing of real estate prices in places like Dubai, London, China and Singapore, the US offers an ultimate bargain for those with cash to spend.
15. Job Creation
Job Creation is the rising demand in the commercial real estate sector, according to Lawrence Yun, chief economist of NAR. It’s expected that the economy will improve by 2.5% in 2013, and with a decent creation of jobs, with the assumption that there are no fiscal challenges; the demand for commercial properties will slowly rise.
14. Improvement in Import and Export
Warehouse and industrial sectors are in great demand since imports and exports have improved. Even though exports to European nations are somewhat depressed, trade has been strong with Asian countries like China and India. The other strong trading partners of the US include Mexico, Brazil and Canada.
13. Institutional Quality of Commercial Real Estate
The US has become an investment destination partly since it has around 25% of the globe’s institutional quality commercial real estate, as stated by Ivanhoe Cambridge from Montreal. The market in New York alone has more number of office inventory compared to the whole of Canada, according to Adam Adamkakis, vice president of Ivanhoe Cambridge.
12. Investor Control
What’s really attracting investors in the US commercial real estate market is the level of control, says Philip McAndrews, head of global real estate transactions for TIAA-CREF. With stocks, you become a passive investor. In case you are a sovereign -wealth fund and want to purchase around 30 properties in the US, you’d like to have them handpicked.
11. Inflation Protection Characteristics
Commercial property in the US looks relatively attractive compared to other asset classes at present, according to Dan Fasulo, managing director with Real Capital. This is because every investor is looking for some kind of inflation protection. They are purchasing gold, oil or property. A commercial property has characteristics of inflation protection and it gives you a check each month.
10. Tax Benefits
Real estate owners can benefit from the US Tax Code in a number of ways. Depreciation deductions and mortgage interest can shield a huge part of your income stream.
9. Government-backed Loan Programs
The amount of business loans backed by the government has grown at the rate of 16% per annum in the last three years after the end of the recession to $ 4.45 billion, as stated by the Small Business Administration. Since banks are reluctant to offer loans following the financial crisis, people are turning to government-backed loans to kick off their business ventures.
8. Abnormal Opportunity
According to Walter Page, a director of research at CoStar Group, the prices of commercial real estate in the US have become very attractive. He says that this is an “abnormal opportunity” and that it’s the right time to purchase, fix or renovate a property.
7. Strong Economy
The US has the largest and most advanced economy from all other countries, with GDP of about $ 48,000. The taxation and regulation systems in the country provide foreign investors an unmatched operational freedom. It’s also the most competitive, open and innovative economy in the world.
6. Consumer Market
Companies across the globe operate in the US in order to be closer to their customers and suppliers in a dynamic market. The country accounted for roughly 42% of the consumer goods market in the world in the year 2007. The US also has free trade agreements with around 17 nations with a combined GDP of $ 5.1 trillion, which gives foreign investors in the country unmatched admittance to diverse markets.
5. Productive Work Force
Those investing in the US gain admittance to a highly adaptable and productive workforce. The country heads the list in labor productivity per employed person, which is valued at $ 63,885 every year. The productivity gap between other developed economies in the world and the US continue to broaden, according to the International Labor Organization.
4. High-Quality Commercial Real Estate
The United States has the world’s 25% of high-quality commercial real estate, according to Ivanhoe Cambridge from Montreal, who is a world-class property owner and realtor. The commercial real estate sector in the country is valued at $ 4.0 trillion at present.
3. Population Growth
Commercial property investors are targeting markets with population growth. They are also concentrating on the infrastructure which will support population growth. Places like Houston and Dallas-Fort Worth and Texas are witnessing a huge increase in population, which is partly due to migration of businesses and people from other countries.
2. Improvement in Commercial Property Loans
J P Morgan Chase recently reported that the outstanding loans associated to commercial real estate had increased by $ 61.5 billion in Q3 2013-a growth of 12% compared to the same period last year. Chief Financial Officer of J P Morgan stated that the commercial real estate market is growing strongly, with increase in loans each month for the last one year or so.
1. Productive US Monetary Policy
The US monetary policy has aided property values. Decreased interest rates make commercial real estate assets highly attractive given the powerful present yield component and the availability of cheap financing.
Low yields in bond markets
With low yields in bond markets coupled with the volatility in equity markets, commercial real estate has turned out to be a lucrative investment, particularly for long-term investors.
Asian pension funds expanding
Investors from Asia are putting in a lot of money into commercial real estate in the US. This is because of the reason that pension funds in Asia are expanding and as a result these investors are amassing assets in their preparation to support the aging population.
Liberalization of rules in some nations
Asian countries like China and Singapore among others are liberalizing rules when it comes to make investment in foreign shores. On account of this change of policy, investment from Asian countries has surged, reaching around $ 5.2 billion as of June 2013.
No pressure to chase yields
The current lot of investors is not pressurized to chase yields, says Howard Roth, head of Ernst & Young. They are primarily investing for the next generation-not only for a few years, such as private equity funds, adds Roth. This is why they are investing aggressively in the US market.
To Sum Up
It’s quite obvious that US has turned out to be an attractive destination for commercial real estate investment, and investors have higher chances to snap up lucrative deals.
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