by: John Ernst and Jeff Tinsley
The value of your commercial properties can vary widely based upon market conditions, cost of capital, and asset performance. It is critical for investors who own assets to keep these factors in mind as they have a significant impact upon value and return on investment (ROI).
When considering a purchase, an investor’s primary concern is typically protection of their capital investment, quickly followed by their ROI or total return on the invested capital. With real property investments, the ROI is heavily weighted with the sale or residual value which usually includes the return of most of the invested capital.
Value of real property is directly impacted by supply and demand. If tenants and owners demand space which is not readily available, that demand will drive pricing higher. As a property owner, you must be able to identify the current stage in the market. The graph below illustrates the market cycle in times of optimism and excitement as an owner. This is considered to be the ideal time to maximize your investment dollars on a sell of your property.
Of course, there is a flip side to this market cycle. These are times when industry impacts and business contractions drive value down. Here, investors may overlook or miss the signs of a declining market since it can occur slowly or very swiftly. As the market continues to struggle, fear and panic may set in as the investor becomes depressed with the poor market conditions.
With oil prices falling by 60 percent, investors need professional assistance to analyze their properties. An investor should always ask, “Where are we in the market?”, as it is important to understand market cycle fluctuations. Often, this is difficult to assess and an investor should consult with a commercial real estate professional to help them identify current market conditions.
If you require assistance in identifying what is best for your future, our investment team at The J. Beard Real Estate Company is here to help. We will utilize our knowledge and experience to help shed light on the current commercial property market conditions.