Commercial Real Estate Investing In High-Growth Markets & What To Look For
As savvy real estate investors, we want solid commercial real estate investments. There are all kinds of commercial real estate assets to invest in to diversify your investment portfolio such as office buildings, the industrial sector, life sciences, student housing, data centers, and of course, our favorite: multifamily apartment communities. But how can we know that our capital is being deployed into the best commercial properties that can bring us good, solid returns? And how can we figure out the best commercial real estate markets in the United States to deploy our investment capital?
In this article, we’ll go through a checklist of important criteria and metrics to look for when analyzing real estate market conditions so that you can locate the leading places in the country to invest in commercial property so that you can make the most educated investment decisions.
Let’s drill down on some of the real estate market indicators that can help you invest with confidence.
Research Population Growth
Population growth seems like an obvious metric but some individual investors don’t correlate population growth with strong demand and an increase in property values which results in low vacancy rates, a lower unemployment rate, and high demand for housing.
Some investors might just like an area and decide to invest in a particular market for various reasons. We, at PCRP Group, think that this metric is one of the most important criteria before looking at any CRE investment.
Looking at the population growth rate historically can be important information as well, however, it’s not the only indicator. Additional information that’s helpful is understanding the housing affordability with both single-family rentals and other residential real estate such as apartment communities. The lack of affordable housing can be an opportunity for the investor who is looking for commercial investments in affordable multifamily apartment communities or mobile home parks.
In helping you decipher this, be sure to understand the residential real estate market, and the national association of realtors (NAR) is a good place to start collecting data on a particular metropolitan area and the surrounding towns that you may be interested in investing.
If rents are steadily increasing over the long term (over the past year or so at least) then this may be a sign of an emerging market that could be reflecting strong housing demand and potentially a good opportunity for real estate investors.
Research The New Residential Construction Index At The U.S. Census Bureau
The New Residential Construction Index consists of two surveys that are important for you to review if you want to invest in a particular area. The two surveys are building permits and construction.
The building permit survey will show you the number of building permits issued each month for new construction projects on single-family homes.
The construction survey will show you how many single-family homes are actually under construction and how many of these residential properties have been completed.
What this can help you gauge is the likelihood of real estate prices increasing, which will likely cause increases in rental rates and therefore increases in rental income for investors. Conversely, if new home construction is exceeding demand because there is not enough population growth, then rents will likely decline as there will be higher vacancies.
Research Foreclosure Statistics
Another important metric to research in particular metro areas is the foreclosure rates. This is a definitive metric that can quickly give you an idea of how strong the real estate market is in that area.
If the numbers are showing a steady uptick in foreclosures then it’s likely that the local economy is not a place that you want to be investing in commercial buildings.
Be sure to read the local newspapers, business journals, and local social media to find out about corporate announcements of expansion of headquarters or relocations. This information is extremely valuable for commercial property investors in helping you determine the viability long term of a real estate market.
There may be new commercial real estate construction going on, which means those developers might be seeing an opportunity in that market that would warrant their efforts. These local news organizations, development activities, and trends are helpful in your ability to understand the health of the local economy and project the economic growth in that municipality.
Take An Interest In The Supply And Rate Of Sales
One metric you can easily find that is helpful for you in determining a good solid market is how fast homes are selling. For example, what is the housing market doing in this particular real estate market? Are home prices going up? Is inventory going down? Are rents increasing, and why?
A “balanced” real estate market reflects about a five-month to six-month supply of inventory of properties for sale.
If there is more supply than that, then your takeaway is that it’s not a very robust market. It doesn’t mean that it’s a bad market but you may want to look for a real estate market that has a lower inventory supply so that you have a higher demand for your commercial property if you are planning on investing in commercial residential real estate, for example.
Conversely, when inventory is low for all types of real estate, then property values tend to increase, and the general local real estate market tends to do very well.
Days On Market Is A Strong Indicator
Another metric to look at besides the inventory level is the days on market (DOM). You can get the trending numbers (historically and projected) from a local real estate broker in the area. You’ll want to look for a downward trend of the days on market. If days on market are increasing, then again, it doesn’t necessarily mean it’s a bad market, but you just want to dig deeper to understand what is happening in that market.
Commercial real estate investment opportunities can be very lucrative, but you will need to conduct your own due diligence to make sure the real estate market is where you want to be deploying your hard-earned capital.
What Research Can You Do As A Limited Partner Investor?
Ok, let’s say you absolutely know that you want to invest in commercial real estate syndications to grow your net worth and your wealth. What can you do next to ensure you are putting your best foot forward with your next investment?
Marcus & Millichap, CBRE, Yardi Matrix, as well as JLL, and a variety of other real estate research firms can provide a wealth of resources for you to dive into quarterly and yearly reports for data, projections, and trends in commercial real estate. These institutions cover virtually every commercial asset class in the commercial real estate industry and every metropolitan area in the U.S.
Utilizing real estate brokers and online platforms such as apartments.com or even zillow.com can give you an overview of rental rates and how they are trending. Those are the free sites and services, but there are also paid sites that you can utilize such as Costar. Costar is very expensive but has very in-depth data on rents and comps of commercial properties.
Why PCRP Group Is A Smart Choice For Passive Commercial Real Estate Investors
It is challenging to obtain solid financial information to make wise investment decisions because much of the in-depth and historical information which can be so helpful, is only available through pricey paid services. However, the good news is that we have access to a great deal of the information needed to make sound investment decisions because that’s what we do for a living.
We have partners and brokers that we obtain our information from and then we vet it extensively before we ever put out an offering or opportunity to our passive investor partners. In all of our investment summaries when we roll out a new property, you can see the extent to which we go to analyze the real estate market, the submarket, the infrastructure, schools, crime, diversity of job industries, population growth, job growth, climate-resiliency, flood patterns, rental rates, amenities, parks, recreation, airport access, and a whole lot more. We drill down extensively into a market before we decide to invest in a commercial real estate project.
We strictly vet the deal sponsors that we work with. We develop relationships with them and have the utmost confidence in their conservative underwriting and their ability to perform. We know their proven track records of being able to execute their business plans and exceed expectations. The fact is, we invest right alongside our passive investor partners, and we would never want you to put your hard-earned capital into a real estate syndication that we weren’t willing to invest in as well.
So, as you can see there really is a lot to learn when you are investing in commercial real estate. But the good news, if you are interested in investing in commercial real estate syndications as part of your investment strategy, we can help you get started and will guide you every step of the way.
Ready to Learn More?
The best way for you to learn more about commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!