Real estate is a well-known asset class that has been used to build wealth for centuries, defend against inflation, and is sometimes referred to as recession-resilient. Commercial real estate investments can show more resilience than other investments during a recession, but not all asset classes of real estate investments will be able to weather the storm.
The COVID-19 health crisis has unleashed unprecedented economic uncertainty, not just in the U.S., but globally. In the post-COVID era, many jobs have gone remote or hybrid, which resulted in office space and retail suffering in many major cities. This has given a bad rap to "commercial real estate" in the past few years. But it is crucial to realize that, commercial real estate is a multifaceted asset, which offers diverse types of properties for different purposes. Some types of assets will do extremely well during a recession, while some will lose money and might get foreclosed.
The kind of properties likely to best perform in a recessionary environment will have most of these five characteristics:
- Good Location
- Solid Fundamentals
- Strong Demand
- Sufficient Cashflow
- Low Operational Expense
So, what are some examples of recession-resilient real estate?
- Self-Storage Facilities
- Medical Office Buildings (MOBs)
- Mobile Home Parks
- Suburban Multi-Tenant Office
- Industrial and Warehouses
Many opportunities will present themselves in front go you during a recessionary period when others are fearful. Thriving during tough economic times is possible if you are ready to pivot and dare to think outside the box. Remember that these assets are the right fit for investors who focus on long-term wealth generation rather than making quick bucks in the short term. You can still thrive during the volatility in recessionary times by carefully crafting a recession-resilient portfolio and taking conservative measures toward -
- Tenant Retention
- Cost-cutting
- Property Improvements
- Renegotiating Lease Terms
Conclusion
When it comes to recession-proof commercial real estate investing, the possibilities are endless. With the current economic climate more unpredictable than ever, there is no better time than now to invest in real estate. Investing in real estate allows you to diversify your assets, take advantage of tax benefits, and secure a steady income stream for years to come.
Therefore, if you’ve been considering investing in commercial real estate, it’s important to ask the right questions and find the right partners to help you with your investment journey.
As I mentioned above, commercial real estate is more than just office spaces and retail. Watch my video to learn about the different types of commercial real estate assets.
DISCLAIMER
The content is for informational and educational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained here constitutes a solicitation, recommendation, endorsem*nt, or offer. Any investment includes substantial risk, please talk to a licensed professional to seek advice on your specific case.
FAQs
Commercial real estate investments can show more resilience than other investments during a recession, but not all asset classes of real estate investments will be able to weather the storm.
Does commercial real estate do well in a recession? ›
Investing in commercial real estate during a recession can also offer unique opportunities, as property values may be lower and there may be less competition from other investors. However, it's important to maintain a cautious approach and to have a solid understanding of the market.
What type of real estate is recession proof? ›
Essential property types such as multifamily housing or healthcare facilities that will continue to be in demand during a recession remain a good investment. Geographic factors can be a significant characteristic to understand in the recession-proof market.
What is the outlook for the commercial real estate industry in 2024? ›
With fewer new construction deliveries, the fundamentals of this sector will remain solid in 2024. When new supply is constrained, it can lead to tighter market conditions, potentially supporting rental rates and occupancy levels, key components of the commercial real estate sector.
How much commercial real estate debt is maturing in 2024? ›
$929B In Commercial Property Loans Set To Mature In 2024.
Why are people worried about commercial real estate? ›
Commercial real estate is in big trouble — and the problems may have major financial fallout. Problems for the US commercial real estate sector seem to be getting worse — and spreading. Steeper interest payments, tighter bank lending, and declining asset values have slammed the sector.
How does commercial real estate fair in a recession? ›
A recession can lead to decreased demand for commercial real estate, resulting in lower property values. This can create opportunities for businesses to buy properties at discounted prices.
Is it better to have cash or property in a recession? ›
Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.
Is a recession a good time to buy investment property? ›
Meanwhile, real estate is a hedge against inflation and has tax advantages. Even with inventory levels driving up prices, investing in real estate during a recession could still result in significant long-term returns. If you're willing to hold on to your investment, you can benefit from the eventual market rebound.
Should I sell real estate before recession? ›
If you must sell your home, selling it before a recession hits and the scale tips in favor of buyers is smart. This will likely net you a faster sale, at a higher price and with fewer concessions.
Whether the market is going up or down, real estate investors can thrive. But you can do especially well in a recession if you are smart. Preserve capital, don't hold too many fix-and-flip properties, never reduce marketing spend and work harder than ever, and you will do well.
What is the future of commercial real estate in the US? ›
According to Statista, the commercial real estate market will likely grow at a CAGR rate of 2.96% between 2024-2028, reaching $133.5 trillion by 2028. Upon first sight, this might seem like a positive prediction, but other numbers are much more 'sobering'.
What is the trend in CBRE in 2024? ›
CBRE expects another year of improved performance in 2024. RevPAR growth is forecasted to reach about 3% year-over-year, driven by the ongoing recovery in inbound international travel; the strong performance in the meetings and group events segment; and continued demand from leisure travelers.
What is the market outlook for CBRE in 2024? ›
CBRE's just-released Canada Real Estate Market Outlook forecasts that commercial real estate investment activity will recover in 2024 as credit conditions return to normal and investors get better access to capital. That follows a 15% decline in investment activity in 2023.
Is it good to invest in real estate during a recession? ›
Meanwhile, real estate is a hedge against inflation and has tax advantages. Even with inventory levels driving up prices, investing in real estate during a recession could still result in significant long-term returns. If you're willing to hold on to your investment, you can benefit from the eventual market rebound.
How are interest rates affecting commercial real estate? ›
Higher borrowing costs tend to dampen commercial property prices directly by making investments in the sector more expensive, but also indirectly by slowing economic activity and reducing the demand for such properties.
Is it bad to buy real estate before a recession? ›
However, it is difficult to time the market. Therefore, you might buy a home at a great price, but the home you buy may be worth less before the recession ends. Risk of Foreclosure – During recessions job losses increase. If you lose your job or have a reduction in income you may not be able to afford the payment.
