Commercial Real Estate Buildings Types Defined & The Current Economic Outlook For Each

Hmmm....Office....or apartments....or maybe...wait...do you hear something?

There are many types of properties that fall into the commercial real estate umbrella. Understanding current market trends can help guide you to the best investment decision.

Office Buildings
An investment in an office building simply means you are investing in a building where people work and companies are headquartered. They can be as small as am 1,000 square feet or as big as a downtown high rise. National sales of office buildings have dropped 75% in the third quarter of 2008 over the same time period in the previous year according to the National Real Estate Investor.

With the economic downturn, more businesses are closing, which translates to more empty office space. Many office owners are renegotiating lease contracts to help business owners remain tenants, while the owners continue to realize slimmer profit margins from renegotiated leases.

However, sales of medical offices have only decreased by 20%*. Experts cite the rapid increase in health care concerns and the slow economy forcing doctors to retire later as primary reasons for the difference in decrease. Health care expenditures in 2007 were $2.3 trillion and are expected to be $4.2 trillion according to the National Coalition on Health Care.

There are two types of medical office buildings, those in close proximity to hospitals and those in residential neighborhoods. As the government continues a strong focus on health care, rapidly increased need for more medical office buildings is foreseeable. Additionally, these properties are attractive because most leases are long-term with personal guarantees from physicians.

Retail Properties
A retail investment is an investment in a building that houses one or more businesses that sell consumer goods or services. Samples of retail property tenants include grocery stores, hair salons or clothing stores.

Economic trends project a bleak outlook for retail properties through 2010 due to peak level vacancies and high single digit rent decreases. Although January sales showed a near-point increase, experts believe the results were not properly adjusted to show substantial retail discounts in the holiday season.

Multifamily
Multifamily investments are in buildings that house several people in individual units, like apartment buildings.

As with most investments, the multifamily sector is also trending downward. However multifamily REITs, (Real Estate Investment Trusts) have continued to remain both stable and liquid. Experts forecast that REITs will continue to remain stable as they have greater ability to adopt defensive postures with both balance sheets and operating activities.

However, multifamily owners face a waning demand and must compete with a high vacancy rate of single-family houses that haven’t been foreclosed that are now being rented. Additionally, there has been a significant fall in asking rents, which is directly tied to vacancy rates.*

Industrial
Industrial investment properties are those generally occupied by manufacturers. While this industry at first appeared to be impervious to the economic downturn, industrial properties recorded their weakest performance in fourth quarter of 2008 since 2002.

With a decrease in demand for consumer goods, manufacturers have halted production if not stopped operating completely. However, industrial construction is still continuing to grow. This presents an interesting opportunity for an investor willing to take a risk. With the government’s focus on green energy and production, there may be value to this investment.

Please look for our next post on commercial real estate buildings covering mixed use, seniors housing, storage spaces and hotels.

*Data provided by National Real Estate Investor at www.nreionline.com

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