Welcome to “Tips for Buying and Selling Commercial Real Estate in 2024“
The commercial real estate market in the US is finally coming out of the woods and showing positive trends as was predicted for the second half of 2024. The pandemic’s after-effects are dwindling to some extent, with the commercial real estate market predicted to reach a value of 25.28 trillion US dollars by the end of 2024.
However, in this changing scenario, navigating the CRE market can feel like going through a complex maze. If you are a buyer or seller, it’s essential for you to get the hang of the best tips and strategies for buying or selling commercial real estate property and understanding the market.
Whether you are a seller looking to get maximum value out of your commercial property or a buyer wanting to secure a lucrative deal, if you are on the lookout for some essential tips, read along. But first, understanding the current market dynamic is vital to succeed in this evolving landscape where interest rates are fluctuating and competition is only intensifying!
Understanding the CRE Market Landscape
The commercial real estate market in 2024 is anything but simple, with a complex interplay of opportunities and challenges across different sectors. While office vacancies continue to rise, retail, industrial, and multifamily sectors remain strong. Investors remain hopeful as we look to 2025.
Key Trends and Market Insights
Below are some key trends and insights driving the shifts in the CRE market right noe:.
- Interest Rates: The Federal Reserve recently dropped rates for the first time since March 2020. This could indicate the beginning of an easing phase and cause big shifts in every sector of the CRE Market.
- Increased Demand: With lower borrowing costs, more investors are attracted to commercial real estate, which can increase demand and drive up prices. This is especially true in areas with high demand.
- Improved Profitability: Lower interest rates can reduce the cost of debt service, which can improve the profitability of investment properties.
- Vacancy Rates: The office sector has born the brunt of the rise in remote or hybrid working with high vacancy rates of around 14%, although the gap between vacated and occupied spaces is now slightly narrowing from what was observed last year. Some of the big companies are now demanding their employees return to the office, and the smaller firms will likely follow suit. This could begin to slow vacancy rates as we move to 2025.
- Rebound in the Multifamily Sector: Unlike the office and retail sector, the multifamily sector in the CRE market is experiencing a full-blown rebound, with net absorption more than double the amount last year. There is strong demand in this market, despite a vacancy rate of 7.8%.
- Industrial Market Remains Strong: E-commerce sales growth continues to fuel demand for industrial properties.
- Smarter Retail: Retail in grocery-anchored shopping centers in densely populated areas continues to perform well, and many many major big-box retailers are now opening smaller, concept stores. Retail vacancy rates are slowing as availability is limited.
Tips for Sellers: Maximizing Your Property’s Value
If you are interested and willing to sell your property in the current market, here are some surefire tips to gain maximum profits:
Know Your Competition
First up, understand the competitive landscape. Before listing your property, explore the properties in the area that are currently for sale and research different comps to analyze their pricing and features. This will help you set a competitive price. If you take advice from any expert in the market, they will tell you not to shy away from being aggressive with your pricing.
In the current market interest rates are beginning to stabilize. Therefore, as a seller, you can afford to be aggressive with your pricing strategies to attract the right buyers. The influx of interested buyers will help you get multiple offers, and you can probably make a large profit.
Go for a Pre-Inspection
One of the best strategies you can implement is getting a pre-inspection of your property done before you go into the selling process. This proactive approach can help you identify any potential issues with roofing, HVAC systems, structural components, and environmental issues before they can become deal breakers. Once you are aware of the issues, if you can afford to take care of them ahead of time, then you can justify a higher asking price. Even if you choose to not go that route, being aware of the issues can still help better prepare you for the negotiation process.
Benefits of a Pre-Inspection
- It will eliminate all kinds of surprises during the sale process.
- A pre-inspection will provide you with the opportunity to make necessary improvements and enhance your property’s appeal prior to putting it up for sale.
Strategic Timing
Timing really is everything in real estate! Consider your personal circumstances and the broader commercial real estate market conditions. If the market is favorable and you think you can get the price you have set, even if it’s aggressive, which can be your best bet, move quickly with the selling process to take advantage of buyer interest.
Be Open to Negotiation
In a market characterized by high vacancy rates and fluctuating interest rates and demand, flexibility is vital. Recent reports predict that transaction activity will rise by 25% to 30% in comparison to the 2023 lows, signaling an increase in buyer interest.
So, capture the interest of these potential buyers and make your property more appealing by being willing to negotiate terms like closing dates or contingencies, especially if you are competing against several listings and setting up high rates for your commercial property.
Tips for Buyer: Crafting the Perfect Offer
If you are a buyer looking to craft the perfect offer to bag the deal on any commercial property you like, here are some tips that will help you:
Communicate, Communicate, Communicate
The first, and quite literally most important, part of a successful buying strategy is communication. So communicate as much as you can. Get in touch with the seller’s agent to understand the property’s selling situation and seller’s intent and get to know if there are other multiple offers on the table to craft one that best meets their needs.
Reports show that properties with strong buyer-seller communication often see 15% more competitive offers than those without it. Here are some questions you can ask:
- Are there other offers on the table? If yes, where do they stand?
- Where does my offer need to be to get the seller’s attention?
- What’s the seller’s timeline for selling?
Getting answers to the questions and understanding these aspects can give you a competitive edge as you craft your offer.
Know the Seller’s Motivation
Another important thing to consider is the seller’s motivation while crafting your offer. Either communicate with the agent or the seller directly to understand the seller’s intent behind selling their property. This can give you insight into how to tailor your offer. Go with these questions in mind: is the seller in a hurry to sell, do they want a certain price, what are they motivated by? For example, if the seller doesn’t want to have to fix the issues that come up in inspection, then you can use that to your advantage to negotiate a much better price.
Stand Out in a Competitive Market
In a competitive market and landscape filled with multiple offers, your offer must shine and stand out. Once you have gotten a thorough idea of different offers and the seller’s intent, set a competitive price.
Other than offering a competitive price, also highlight what makes you a serious buyer so your offer gets taken seriously. Touch base on points like your financial readiness or flexibility on closing dates and fewer contingencies. A well-crafted offer from your end that resonates with the seller can significantly increase your chances of securing the deal.
Conclusion
All in all, despite the rising interest rates, high vacancy, and other similar market insights, the commercial real estate market is ripe with potential for buyers and sellers. By understanding the landscape and your local commercial real estate market thoroughly and implementing the aforementioned strategies, you can navigate the complexities of buying and selling property with confidence.
Don’t forget, whether you are selling high or buying wisely, the key is staying informed and communicating effectively!
Also Read: The Real Cost of Empty Chicago Offices: How Downtown Vacancies Affect You in Real Dollars
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