The economic shut down over COVID-19 has impacted many commercial real estate investors. While some are lucky enough to rent to essential businesses, others have remained vacant for months. Without renters, investors are paying their mortgages out of their own pockets. Many can afford to stay afloat for awhile but are wondering how long the losses will continue.
Are you thinking about selling your commercial property to avoid long-term losses? For some, selling is the right move. However, there are several reasons to hang on to your property throughout these hard times.
1. Tenant demand for commercial real estate will rise again
Normally, when businesses vacate a high demand location, loads of businesses would compete to get into the empty space. That’s not happening right now. With the economy shut down to varying degrees all over the United States, many companies have gone out of business and the ones that are left are barely hanging on.
The current demand for commercial real estate is strictly from buyers; not businesses looking for a spot to operate from. Commercial real estate sales are doing well—the problem is finding tenants who can afford the rent.
If you can afford to keep your property while riding out the economic shutdown, you will eventually be able to rent your property again. The shutdown won’t last forever. In the meantime, a long-term vacancy is the perfect time to remodel for future profitability.
2. Property could be in short supply in the future
The residential housing market is apparently still booming in the United States, with plenty of new constructions being planned and built. However, the commercial market isn’t following the same trajectory. According to data obtained by yahoo! finance, commercial building has drastically slowed down, and 75% of contractors say their commercial projects have been postponed or canceled.
If you sell your property today, you may have a hard time getting a new property when the economy returns to normal. Investors buying up commercial properties plan to hang onto their investments for the long-term. If no new buildings are created for some time, you’ll have to compete with other investors for a small supply of properties. This brings up the next point: high prices in the future.
3. Property could be more expensive in the future
Are you thinking it’s better to sell your properties now and buy more property when the market is doing better? Under normal circumstances, that would make sense. However, given that commercial construction has just about stopped, there won’t be many properties available in the future. If you manage to find a property for sale, you can expect to compete with many other investors and pay a sky-high purchase price.
Selling your property now and buying another property later on could cost you more money than you think. When the economy comes back, loan rates and property prices could go up, and you might not be able to get approved for the type of loan you want without paying an abnormally high interest rate.
4. Declining commercial property values don’t reflect the future
As an investor, it’s critical to know when to throw in the towel and when you’ll benefit by hanging on despite hard times. It’s true that commercial real estate values have declined by 25%, but that doesn’t mean you should sell your investment.
Unless you’re already renting to a thriving business, you won’t make much money until the economic shutdown has been resolved. Your property value will probably decrease, and you may not be able to find a tenant for a while. However, don’t let that deter you from hanging on to your investment.
In the future, commercial property will see an increase in value due to scarce availability and an urgent need for people to run their businesses. By keeping your property until things return to normal, you’ll be one of few who will be able to quickly start turning a profit.
5. You can provide space for necessary businesses
As a commercial property owner, you would have the ability to provide space for necessary businesses who are out of options. For example, say the lease is terminated for your town’s only grocery store. You could offer them a better lease deal to keep them in business, which would serve the entire community.
Hang on just a little longer
If you’re getting antsy to sell your property, hang on just a little longer. The economy will bounce back and better times are right around the corner.
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