Commercial Outlook for Managing & Investing – Cash Flow Cow or Commercial Crunch?

Landlords and Property Managers come in all shapes and sizes and we sometimes overlook great opportunities in commercial real estate because of the complexities.  A good relationship with a commercial property manager can help overcome those issues. With the current down market in commercial real estate you can find great opportunities to buy and hold. This should remain good for the buyers who have a good business and management plan in place. We are seeing a trend with current commercial property owners being forced to the sell their properties for much less than replacement cost values due to high vacancy and under preforming property income. One of the largest trends that investors will face in the future of commercial estate is the shift to our next generation of consumers and customers with their philosophy to live, work and play without the long commutes. The development of mix use commercial projects that include Multi-family and Condos, Hotel, office and retail should do well in the future of Georgia and Metro Atlanta.

The five areas of commercial are all shaping up with very different futures and I would list them from the projected best to the less preforming for Metro Atlanta and the Georgia Market.

• Industrial and Warehousing: By far this should be the future for Georgia growth in the sector of commercial real estate and will go to new heights. New trade routes with China, great infrastructure for transportation and rising gas prices will put pressure to develop warehousing and industrial sites. Georgia’s business friendly atmosphere, low cost of doing business and the availability for a great work force to choose from will put Metro Atlanta on top of the list. Atlanta is currently ranked fifth in the nation for transportation which is highest ranking for a land based city in the US market. We must focus on our traffic and transportation problems if we wish to keep this area of growth because our neighboring states are more than willing to provide for this business.
• Multi-Family: Our next generation seems to be less likely to want to own the big box homes with the long commutes to work and the ball and chain of a mortgage. They will live in a smaller more green spaces than their parents did. They want to live, work and play in the same area and it appears they will be less likely to own. This sector may see large growth as we head toward being a renter’s nation. There will be great pressure to provide the highest quality of living space for value for those who want to live, work and play in mixed use commercial real estate.  For those developers that do it well, they will see some of the greatest returns on their real estate investments. Gwinnett and Cobb counties should be on the top of any investors list of location for this kind of development as long the counties make it easy to for them to perform their business.
• Hotels: The need for hotel development is determined by occupancy rates. Atlanta has been and should remain one of the nation’s top locations to support the super-size conventions for businesses and service providers. We should see moderate growth for these types of hotels in Metro Atlanta. Also this should be good for mid to smaller sized hotels in the out laying areas of Metro counties and the possibility of the super-size developments closer in around I-285 connectors with I-75, I-20 and I-85. But this sector of commercial real estate will most likely see current properties go through renovations verses new construction.
• Retail Space: This has been in a weak market position for sometime without much hope for change. The way we buy goods and services is shifting to the internet and this is affecting the commercial retail real estate market. The trend is heading to small more inventory efficient stores in locations that support local consumers. There are considerable downward pressure lower rents on retail properties as they have higher than expected vacancy in some locations throughout Metro Atlanta and Georgia as a whole.
• Office Space:  remains the weakest position nationwide and locally. The need for office space is facing a downward shift due to less used desk space and a more mobile work force that works from home or on the road via the internet. Office space is becoming more of a hub for meetings and less of a place to work. The internet has freed businesses to use less space to support their companies. Gwinnett is in a good position to keep this sector stable but should not see much growth. The trend will be to reconfigure office buildings to accommodate multiple users in less space.

I would say that there is a land of opportunity out there in commercial real estate for those who wish to take the opportunity, but you must choose your path, property, business plan and your management team with care in order to succeed.  An educated approach lowers your risk and increases your returns as much as possible. As we look to the future you will see commercial property managers becoming more diversified in the types of commercial properties they management as mix use properties become more common. And the best managers will adapt to the market and change to maximize the returns for their owner clients.