How Covid-19 is Affecting Commercial Real Estate
Hello everybody! Sunny, with Synergy Real Estate & Property Management, here. Today we’re going to be looking at commercial real estate. Commercial real estate is in a compromising situation because of Covid-19 and the way that shifts in purchasing trends are happening.
Consider office space
I was speaking with a bank manager, someone who’s been with a larger bank here in Bakersfield, CA for quite a while now. He was talking about how they’re having a lot of regulations in the office to manage Covid-19. They have adjusted by taking a majority of their workforce and having them work from home or other locations. Now, left close to 50% of their office space vacant. However, they’re still being as productive as they were before and surpassing numbers that they were thinking they were going to hit. Therefore it looks as though they’re going to be letting go of that 50% of unused office space. Now, that’s a huge number!
Considering that, if they let go of that 50% of unused office space, they are looking at savings of somewhere around $80,000 a month; with rent and other expenses included. What that does is, it adds to the bottom line and allows those workers to move around,do what they want to do, and live where they choose while still being productive.
I think office space, in the near future, is going to look very different than it does today.
Now, consider retail space
Retail, Mom and Pop shops, even some large outlets are starting to go down and go bankrupt. What’s going to happen when those spaces are gone?
Because a lot of retail space is transitioning towards an internet shopping base, a lot of that physical space is not needed. With internet shopping, businesses find that they are getting the same sales (if not better) online. Therefore, why spend that expense of taking care of a building if your profits are not going to be as high as they are online?
With a lot of retail space being unused, that leaves a big hole in the commercial real estate market. Especially here in Bakersfield because the commercial real estate market is marginally built up of office space and retail space.
What happens with commercial real estate and how can I invest in commercial real estate moving forward?
One of the things that will make sense to invest in is commercial multifamily. A building or complex is considered “commercial multifamily” when it consists of 5 or more units.
Investing in commercial multifamily puts you in a position where you’re dealing with a little bit more savvy financials. You’re working with people who understand the financing and renovation processes a little better and people who know how to position properties correctly so that we can get the best dollar per price agreement .
I believe the commercial multifamily properties make the most sound investment moving forward because you’re having a lot of people moving around. These people who move around tend to rent before they buy so those vacancies, at least for now, should be down.
When you look at two to four unit multifamily properties there’s generally a ton of competition, especially here in Bakersfield where we have good cash flow, good cap rates, and being in California. However, what you’re going to notice when you go to the commercial side is a lot more people drop off and don’t want to compete against these other people because of the level of expertise needed. In that aspect, you’re driving down the actual competition you have, giving yourself a better option to purchase.
One other option to look at would be mobile parks. Mobile parks have been popular the past couple of years as an alternative investment category for 2 reasons. First, you’re getting someone to pay you for access to the land to put a mobile home on. Second, if you own the mobile homes, you’re also getting rent from them as well. It increases your profit margins.
If you’re looking at specifically elder adult (55 years+) community mobile home parks, they tend to be a little bit quieter than the all age parks. Those parks are starting to go a lot faster. It’s definitely something to look at.
Another option to consider is data warehousing, which is actually a new facet of real estate. Companies find themselves needing space for a multitude of servers with all the data being transferred. It’s something that can be built pretty easily. We’re talking about industrial style properties that provide security and housing for the servers. Basically, what you’re looking for is large amounts of land with plenty of indoor space to keep all of these servers and Bakersfield is abundant with that right now. Well, how do you attract clients for properties like that? If that’s something that we can help figure out, you’re going to be looking at a good commercial real estate investment moving forward.
One final option would be cell towers, which wouldn’t need a lot of room. While there’s not a ton of income coming off of, it is a really good source of long term income.
So a couple different options there. I just wanted to go over what’s happening in the commercial market. How we can best move forward and How we can invest in a time like this.
If you have any questions about commercial real estate please feel free to reach out to me, our contact information is below. If you have not subscribed to our Youtube channel please subscribe using the links below. If you have any real estate questions please comment, we’d be happy to respond to your comments or even make a video.
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