What Commercial Real Estate Buyers Need To Know Before Price Shifts

If you’ve been a commercial real estate buyer long enough, chances are you’ve got some stories about having been a little off on your timing. Like many CRE investors before you, you may have bought a few months before prices started going down. You might also have tried waiting, only to see prices increase and get out of reach.

Commercial real estate is always in motion. No matter how seasoned you might be, it might be tricky to stay ahead of the curve.

While you can’t predict the market with perfect accuracy, some signals can help you. Understanding these indicators can help you spot and identify trends as they form. With this knowledge, you can avoid overpaying, uncover undervalued opportunities, and time your acquisitions to their maximum advantage.

So, let’s take a look at these key signs that commercial real estate buyers are watching.

Spotting Potential Price Shifts: What Commercial Real Estate Buyers Must Do

It pays to know where to look before the market moves. Spotting and tracking them helps when you’re eyeing a new investment or timing an exit. The following are the key indicators every CRE buyer should be watching.

1. Watch Inflation Indicators

Inflation is one of the clearest signs of where commercial real estate prices are going. Rising inflation can usually push up construction, labor, and operating costs. However, it can also lead to property appreciation and increased rents.

So, if you’re tracking inflation, pay attention to the Consumer Price Index and Producer Price Index. Consider monitoring wage growth, shipping costs, and other inflationary pressures to analyze what can affect the bottom line.

2. Monitor Interest Rates

Rising rates mean higher borrowing costs for mortgages and development loans increase. They can slow down real estate transactions and put downward pressure on prices. As a commercial real estate buyer, you must follow the Federal Funds Rate and 10-Year Treasury yield, key factors that influence CRE financing.

However, you must go beyond tracking current rates. You should also keep a close eye on economic forecasts and Federal Reserve announcements. They can both tell you where rates might be going.

3. Look at Trends Within CRE Sectors

Commercial real estate does not move in unison. Different types of commercial real estate may be subject to various factors. So, here’s a quick look at what matters most in each sector:

• Retail: Sales data and consumer spending developments are among your best clues. If you see sales numbers increase or decrease, it could mean future price shifts. You may also find that various local retail trends impact prices.
• Multi-Family: Population growth and migration trends are key factors in multi-family real estate. If you operate in Lake Havasu, people buying second homes may also be another factor for you.
• Office: White collar employment is often a primary factor that influences office real estate, along with remote and hybrid work trends. In some locations, you might also do well with co-working spaces.
• Industrial: Manufacturing might be a driving force in some industrial real estate areas. Meanwhile, there is an increased demand for warehouses and logistics in the e-commerce sector. Storage investments are also gaining momentum.

4. Study Local Market Factors

Commercial real estate buyers must factor in local market conditions while paying attention to national and sector-specific trends. These indicators are of equal importance, after all.

Here are the local indicators that may influence CRE prices.

• Vacancy Rates: Low vacancies indicate a tight supply and higher rent potential. High vacancy rates can signal oversaturation, leading to lower prices.
• Demographics: Population growth, age range, and average income levels can influence commercial real estate in different ways. For example, Lake Havasu’s high population growth may lead to higher demand in both residential and commercial sectors.
• Rental Rates: Steady rental increases could point to rising property values. However, when rent drops, it may indicate a market headed for price reductions.
• Development: A surge in development could lead to oversupply in that sector. Meanwhile, consistent and measured development suggests stable demand.

Final Thoughts for Commercial Real Estate Buyers

You need more than luck to stay ahead of the market. It takes in-depth knowledge, market awareness, analysis, and experience. While the factors we’ve covered are a solid starting point, they are only the beginning of what you need to know.

So, if you’re looking to gain an edge in the Lake Havasu CRE market, Randy Shuffler can help. A local CCIM with deep experience and expertise, Randy can guide you to identify promising properties and negotiate deals.

Contact Shuffler Commercial Realty to schedule a consultation and succeed today.