What is commercial real estate?
If you’re looking for an investment with a stable and predictable history, look no further than commercial real estate. In fact, for the past 25 years, commercial real estate, which is defined as properties with the potential to generate profit through capital gains or rental income, has outperformed the S&P 500, with annualized returns of 10.3% and 9.6%, respectively.
Commercial real estate contains a range of investment types, including residential properties like multi-family rental units and assisted living facilities for seniors; industrial warehouses for e-commerce operators or manufacturers; retail centers like strip malls, restaurants, and grocery stores; and a wide variety of offices, from corporate business parks and medical buildings to coworking spaces.
Real Estate Market vs. the Stock Market
The inherent value and scarcity of real estate make it a relatively stable investment. Unlike the stock market, which is volatile and subject to the emotional whims of traders, buyers, and sellers, real estate is a tangible asset that tends to appreciate over time, particularly if the assets are held for long periods. When managed properly, real estate holdings can offer a steady and predictable rate of return that helps investors build long-term wealth.
It can also act as a strong hedge against inflation, which is particularly relevant given the current economic conditions. Inflation hit 9.1 percent in June, the highest it’s been since 1981. Property owners with short-term holdings like apartments, self-storage units, and modular housing communities can raise rents to match inflation and stave off losses for investors; and since more people rent than buy during periods of high inflation, commercial real estate holdings like multi-family units can actually outperform the stock market and generate returns up to twenty percent.
Author: Connect Invest
July 28, 2022
