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Investing in Commercial Real Estate: Which Sectors Are Hot, Warm and Cold Sectors And Why?

Hot, Warm, Or Cold Commercial Property Sectors

Every sector in commercial real estate is different from the next. Cycles change for the better or worse for various reasons:

  • due to economy
  • out of demand
  • antiquated aspects
  • area demographics change
  • lack of modern technology or updates to its physical nature
  • change of job force
  • trying to sell products the public has no desire to purchase (or if they want to purchase found a easier and cheaper way to purchase the same items).

Hot sectors such as apartments, industrial, assisted living, student housing, storage have many reasons stressing commonsense and stats that prove their worth.

But even in these sectors weakness can creep in if the investor is not careful choosing the right area and the wrong operator for the investment itself. The less desirable ones at this moment in time like office, retail and perhaps some triple nets can be explained due to overpriced, triple nets, lack of need for offices, internet interference or dilution due to lower pricing/more convenience/less stress in the case of retail.

hot, cold and warm commercial real estate sectors

Trying to buy a home is difficult due to loan process and qualifications and high costs and rising interest rates thus allowing apartments to be a better choice for many young people. Rising population of older citizens in need of some care creates a hot market for senior care in certain areas of the US – but not all.

Private pay verses Medicare makes a huge difference in returns. Industrial properties are hot due to the for need for warehouses by both brick and mortar and online companies.

Amazon, for example, is expanding the number of warehouses in order to ship out for easy to reach locations as a result of their ever increasing orders from the Internet. This has resulted in vast growth and higher rents, especially for urban older buildings that are close by to customers who want products quickly instead of going to their local brick and mortar stores.

There is less demand for office properties, since more business people can work out of their homes or open space warehouse instead of small segregated office settings. Storage is necessary for apartment dwellers due to lack of space and the need to place their valuables in a more secure and easy to reach facility. Student housing right near growing campuses are hot but watch out for pitfalls! Proper amenities, safety and soundproofing are essential items for a successful outcome.

There are various factors that allow success in these sectors besides the whole idea of need and location.

Management and extra amenities along with proper pricing can make or break each investment besides location and looks. Find out if additional building permits for the same type of investment are scheduled in your area of choice. Too much of something good dilutes the entire sector leading to vacancies, lower rents, giveaways by landlords and lower returns to the investor.

Tags: commercial properties, Commercial Real Estate Investment, CRE