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How to invest in commercial real estate in 2018

Texas residents that are looking to invest in commercial real estate may be interested in learning about the trends for 2018. Several ideas were discussed relating to industry trends at the 2017 REALTORS® Conference & Expo that recently took place. For instance, the media may be talking up the fact that companies are buying office space in cities again. However, that may generally be restricted to large companies that should never have left in the first place.

Investors also should be wary of the effects of any tax cut coming from the White House. This is because even economists have a difficult time predicting for sure what they will do for the economy in the long run. Those who are looking to invest in trophy properties should be ready for a drop in 2018. Investors may be heartened to know that the correction will be relatively small compared to recent gains.

CRE lenders becoming concerned about climate change risks

The potential effects of climate change and how soon they could have an impact are the subject of contentious debate in Texas and around the country, but the consequences of anticipated rising sea levels have already prompted some commercial real estate lenders to reevaluate their positions on coastal developments according to a panel hosted by the Commercial Industrial Association of South Florida. However, funds may still be readily available to developers in municipalities that have taken steps to address the threat posed by climate change.

Much has been written in recent years about how climate change will impact South Florida, but banks and nontraditional lenders still seem willing to fund commercial real estate developments in the region. The CIASF panel members say that this is because cities like Miami have committed hundreds of millions of dollars to infrastructure projects designed to prevent flooding and mitigate these effects.

Drones open up opportunities and concerns for property owners

As the popularity of small personal drones grows, commercial property owners in Texas have new concerns to think about in terms of drone use and access at their locations. The devices are not only fun for users to fly and manipulate; they are often equipped with high-powered video cameras that allow anyone to take great aerial shots. Not only do customers and neighbors use the drones, they are being used widely by businesses in sales, marketing, construction, inspection and the real estate industry itself.

Because they are such a great way of providing all-angles views of real estate, they make an exceptional addition to the toolkit of a surveyor or a construction planner or engineer. For marketers, brokers and developers, drone-created videos can be a great way to advertise the best qualities of a property with aerial views and new perspectives. They can even provide a way to monitor the use of equipment and other progress during construction. Their almost unlimited uses even extend to serving as flying, mobile security cameras.

Commercial real estate pros slowly turning to data analytics

Large and small commercial real estate companies throughout Texas have traditionally guarded their internal data as a company asset. The industry has been slow to partner with data analytic companies because early experiments resulted in firms losing control of their data. Some real estate firms tried sharing their data with companies that would collect and curate data, but they then watched their data get repackaged into new products and sold to anybody.

Despite this imperfect beginning, real estate industry professionals are beginning to see the value that data analysis providers can bring to the table. Brokers, lenders and developers could benefit from information about rents, prices and deals that has been refined by data analytic companies. Tools like machine learning and algorithms can pull valuable insights out of raw data.

Halloween pop-up stores an innovative way to fill spaces

In Texas and across the rest of the U.S., an increasing number of retail stores are closing their doors. The retail industry has always operated at razor-thin margins, and online retailers such as Amazon have transformed the industry. Commercial real estate owners have turned to innovative ways to help fill their vacant retail spaces in malls.

Spirit Halloween, a candy and costume retailer, is one such innovative business that offers a solution to commercial real estate owners who have vacancies. Each year, Spirit Halloween opens several pop-up locations across the U.S. The stores are open for an average of two months out of the year, helping commercial real estate owners with their vacancy rates.

CRE report predicts steady returns in third and fourth quarters

Commercial real estate investors in Texas and across the country may encouraged by a report released by the brokerage company NAI Global. The New Jersey-based firm scrutinizes vacancy rates and rents in the office, retail and industrial sectors of 21 key U.S. markets, and its report for the second quarter of 2017 predicts that returns in the third and fourth quarters of 2017 will remain steady. The report also reveals that the often-maligned retail sector may actually be healthier than some experts believe.

Significant drops in New York and Chicago caused office rents to fall slightly during the second quarter, but rents in the other 19 markets studied actually increased. Office vacancies remained at 9.6 percent for the third quarter in a row, and absorption rose in the industrial sector despite falling in a dozen markets. Industrial rents, which had increased by 1.7 percent in the first quarter, inched up by a further 1.6 percent in the second according to the NAI Global report.

Disney and Altice USA engaged in contract dispute

Texas residents may be aware of the controversy surrounding ESPN programming. Some people in other parts of the country may not be able to watch ABC and ESPN regardless of their opinions if a contract dispute is not settled by Sept. 30. Disney is currently in talks with Altice USA on a contract extension in which Disney wants a massive fee increase. Altice USA is a French company that bought the Cablevision systems in the tri-state New York area.

If there is no contract after Sept. 30, it is possible that channels such as ABC and ESPN could be blacked out. However, it is also possible that the channels remain on the air in those markets even if no deal is reached by the time the contract expires. That depends on the relationship between the two sides, and there have been times when stations have been blacked out because of contract disputes.

NAR expecting growth in commercial sectors

The commercial real estate market is set to see a reduction in vacancies, according to forecasts released by the National Association of Realtors. Furthermore, economic growth in Texas and across the U.S. has lead to a continued wave of optimism in commercial markets. A 1.1 percent decline in commercial vacancy rates has been matched in the industrial sector, where vacancies are expected to decline to 7.8 percent.

Vacancy in retail space is expected to decline by 0.4 percent, to 11.4 percent, and the multifamily sector should see a decline in vacancies as well, down to 6.1 percent from 6.6 percent. According to the chief economist with NAR, strong consumer and business confidence and spending caused 3 percent growth during the second quarter of 2017. The economist believes further growth is likely before the end of the year, and that should be a boon to interest in all kinds of commercial real estate.

How to handle issues related to due diligence

Prospective buyers of Texas commercial real estate generally want time to do due diligence. This may include looking at any leases, liabilities or zoning information about the property. Buyers may also need time to secure financing because sellers may not allow contingencies based on financing in an offer. It is possible that a buyer may begin the process of gathering information about a property before making an offer.

This may mean that a seller wants to give the buyer less time to perform such diligence. When determining a due diligence period, the parties involved in the deal may agree to a definite number of weeks or months before a buyer must commit or back out of the deal. In some cases, the diligence period begins only after certain documents have been received from the seller.

Smart building technologies help transform the commercial real estate market

Texans involved in commercial real estate should be aware of the latest building technologies as smart buildings tend to have higher occupancy rates.

According to experts, nearly half of the U.S. workforce will be working as freelancers by 2020. By the time they reach age 38, they are expected to have held an average of eight to 10 jobs. This changing economic landscape makes it more important for developers and owners to ensure their buildings and spaces more attractive through optimization.

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