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Commercial Real Estate Buildings Part 2 —Current Economic Outlook
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More commercial real estate building types
As published earlier, this is the second half of the current economic outlook update for commercial real estate buildings.
Mixed Use Investments
An investment in a mixed-use building is simply an investment in a building that has multiple purposes. This could be a combination of residential, office, retail or industrial. Mixed-Use investments are a niche category in that the formulas used to predict long-term financial success do not always apply. With market fluctuations and variables including not knowing how the combination of uses will work together, these investments can be extremely risky.
According to National Real Estate Investor, lenders face significant challenges in underwriting these projects. However, the 
number of mixed-use projects built nationwide have more than tripled since 2003. If you are considering investing in a mixed-use building, make sure to do your homework. If it is a pre-existing structure with tenants, look at the current ROI and financial soundness of the arrangement. Many mixed-use buildings with condominiums may have condo owners with questionable financing due to the lending occurring in previous years.
Seniors Housing
Seniors housing includes apartment buildings with age restrictions (like a retirement community), assisted living facilities, skilled nursing facilities, memory care facilities and continuing care retirement communities. According to National Real Estate Investor, a recent survey showed that assisted living facilities are predicted to experience the most growth in the next three years.
With the baby boom generation approaching retirement and changes to Medicare fast looming, it makes sense that this arena would experience significant growth in the years to come.
Hotels
Investments in hotels are investments are in buildings that accommodate several people in individual units on a temporary basis. This sector also includes extended stay buildings.
With the recent credit crisis, many experts are predicting this arena will soon hit rock bottom according to National Real Estate Investor. With Revenue Per Available Room (occupancy and revenue metrics) projected to decrease 13% over last year according to a national research firm, the industry is not expected to be out of the red line until at least 2011.
With the current economic situation, budgets are tighter for both personal and business travelers. With other technology-based solutions like webinars and video conferencing, the push for trade shows and conventions has waned.
However, the hotel industry is well versed in using less to accomplish more. They have become more efficient with staffing, food and beverage offerings and using technology to cut costs.
So, should you invest in a hotel? Like every other sector, do your homework. If the offering is right and the risk fits your portfolio, you could stand to turn a profit.
Commercial Real Estate Buildings Types Defined & The Current Economic Outlook For Each
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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