Winter Holidays? It’s about Time to Buy/Sell the Commercial Property!
January 17th, 2014 by Diane Moore
Spring and summer are considered to be the best sales seasons for commercial real estate, however winter can undoubtedly be a purchaser’s market. If you take up the pain of moving around during your holidays, winter can be an excellent time to carry out your property search.
Even though the winter season may not provide enough motivation to buyers to come out of their homes and go on a property hunting spree, there are some reasons to be excited about the cold months.
Time to buy
While everyone else is sipping hot coffee, you should take the courage of stepping out and search for your ideal commercial real estate property. With the demand being less, the chances of acquiring a desired property is pretty high since the discount goes up. So get ready to jump on this opportunity. The only thing required is proper negotiation skills.
Right time to rehab a property
Purchasing a commercial real estate property in the fall or winter will give you adequate time to revamp it, especially for those wanting to buy in the spring when they come out of hibernation. Rehabbing during the cold months may not be a great experience, particularly if you think of doing the work on your own. However, the timing could not have been better.
More leverage and less competition
It’s a known fact that spring and summer are the most effective real estate seasons with many property owners waiting to list their properties. It means that during winter months there are less number of properties which are put up on sale. However, this often points out to the fact that sellers have more effective reasons to sell their properties soon.
Just as there are fewer properties for sale during the winter months, there are fewer purchasers too. You know what this shows-less competition! Since there are fewer buyers in the market, property sellers are ready to accommodate more potential buyers. As a buyer, it is important to utilize this knowledge to the maximum advantage.
More bargaining power
In winter, property owners do not hire contractors at the same rate compared to the rest of the year. As a result, you’ll have more contractors to choose from and more room for further negotiation. Take an advantage of the labor discounts you may be getting this winter. Obtain several quotes and negotiate the price so that you get the maximum returns.
Real estate agents are now listing properties which were not officially listed on the market in order to increase the choices of the buyer. They are also attracting buyer’s attention by coming up with properties which were listed many years ago but were never sold. Some brokers are sending out letters to property owners in the preferred neighborhood of the buyer to motivate the owner to sell his property.
The US is still considered to be the safest economy in the world and is therefore the safest place to make an investment. With the global economic crisis at its peak and confusion in the Middle East, the US is the best place for an investment. Europeans, South Americans, Australians and Canadians are flooding the economy of the country to derive maximum benefit of the housing crisis.
Why Should You Buy a Commercial Property this Winter?
If you have been thinking of buying commercial real estate and want to make improvements to the property, you need to hurry up and do it this winter.
Qualified leasehold commercial real estate improvements which are made this winter will be eligible for the following tax benefits:
A depreciation period of 15 years instead of 39 years.
50 percentage points bonus depreciation.
Section 179 deduction for a maximum of $ 250,000.
Obtaining anyone of these benefits would be remarkable. However, all three together would allow landlords of commercial properties to deduct a significant percentage of the expense of making improvements in a year, instead of having to depreciate the expenses over a period of 39 years.
Example: Tom owns a property which he rents out. He spends roughly $ 500,000 in 2013 to redesign the interior of the building, which includes installing new doors, ceilings, floors and walls.
He can deduct the following amounts:
Section 179 deduction-$ 250,000
50% bonus depreciation-$ 125,000
A regular depreciation of $ 7292 (based on a depreciation period of 15 years)
Tom’s total deduction this winter comes to $ 382,292.
Why Winter Is the Best Time to Sell Commercial Property?
Here are some reasons why winter may be the ideal time for selling of commercial real estate:
Mortgage rates are at record-breaking low.
Property prices have begun to rebound in various markets across the nation. According to the National Association of Realtors, the prices of properties in December were 11.5% higher compared to the same period last year.
Commercial real estate remains a good deal-the prices are improving but are usually below the figures of 2007, and in many places the expense of buying is cheaper compared to renting.
Distressed properties which are normally sold at heavy discounts (around 20% off) are widely available even now. Foreclosures and short sales accounted for roughly 22% of all existing property sales this November.
Commercial Property Sectors Investors Should Consider the Most
The commercial real estate market was hard hit by the recession. However, according to the Commercial Real Estate Outlook brought out by the National Association of Realtors, the commercial real estate market is slowly improving, which is basically due to job creation and improvement of the economy.
Here are some excellent sectors for the investors to pay attention at:
The construction of office spaces has made a considerable resurgence in the present recovery. The office market in the US fared well in 2013, with a steady pace of improvement in the second quarter. The demand of office space benefited from a relatively lower rate of employment, which stood at 7.6% this year.
The US office market is showing positive signs of recovery; however the levels are reduced in comparison to historical levels, according to Raymond Torto, global chairman of CBRE. The total construction of office space in between 2011 and 2012 reached 9 million square feet. This figure is expected to increase to 9 million square feet by the end of 2013.
The best markets for office space include Washington D.C. (vacancy rate of 9.7%), New York City (9.8%), Little Rock (12.1%) and Birmingham (12.4%).
Multifamily properties are witnessing reduced vacancies with rapid increase in rent, which will possibly continue to grow. The increase in vacancy in this sector will only be around 0.1% with a rise in construction to cater to the increased demand, according to the National Association of Realtors. The total absorption of multifamily properties in 2013 will be 266,700 units, which will go down slightly to 259,800 units by next year.
The healthiest places for multifamily spaces are New Haven (vacancy rate 1.9%), Syracuse (2%), San Diego and New York City (2.1% each) and Minneapolis (2.2%).
Industrial Real Estate
With demand anticipated to outrun supply all through 2014 and the rents slated to rise, commercial real estate investors are actively planning to invest in the warehouse sector this winter. Rene Circ, director of industrial research at Property and Portfolio Research (PPR) says that the industrial sector will be a very good bet this winter.
Industrial vacancy rates will fall from 9.3% in Q3 2013 to 8.7% in Q3 2014. The total absorption of industrial space across the nation is expected to touch 102 million square feet by the end of 2013 and 10.58 million next year. Rents are expected to increase by 2.4% this year and 2.6% in 2014.
The best cities for investing in the industrial sector are Orange County, California (vacancy rate of 3.8%); Los Angeles (4%), Miami (5.9%) and Seattle (6.4%).
Best Cities in the US for Commercial Real Estate Investment this Winter
According to a recent report by Cushman & Wakefield here are the top cities in the US for commercial real estate investment.
According to the latest Marcus & Millichap National Retail Research Report, West Coast heads the retail race. San Jose and San Francisco displaced Washington DC and New York as the top attractors of commercial real estate investment.
Retailers in San Jose are taking maximum advantage of the massive daytime population of Silicon Valley. Retail demand in New York City will remain strong this winter since it is the most important tourist hub.
So brave the cold, put on a winter coat and step out to find the finest commercial properties around. Remember that this could be a perfect time to catch the low rates and prices, so don’t be the last one to find this out.
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