We have all driven down the street and seen a countless number of office and retail signs for lease. The Phoenix commercial real estate market has been hit just as hard as the residential markets. The down fall of the commercial real estate market was caused by the lack of consumer spending to support the businesses that occupied these space; therefore, Phoenix commercial property owners were unable to pay their mortgages due to the high vacancy rates. Unfortunately, these property owners purchased their properties at the height of the market and are unable to re-lease their properties at today’s lower lease rates and still be able to pay their mortgage payments.
Fortunately, for today’s commercial real estate investor they are able to purchase at a lower price and still be able to lease the property at the lower market lease rates. Yes, there is still a large supply of vacant spaces on the market but the smart investor can lease their spaces in a relatively short period of time by offering below market lease rates to potential tenants. If you are selling a commodity that is in demand lower than everyone else, then you will be able to sell it. Commercial real estate is no different!
Also, remember a commercial lease is a long term lease unlike an apartment building or single family home. It could take a few month to find a good tenant to occupy your office or retail space but you will also not have any turn-over for a few years. In addition, a good business owner will not want to relocate their business to another location too often because of the fear of losing potential or repeat customers.
Due to the low market lease rates, most investors will lease their space to a tenant on a two to three year lease instead of a 5 to 10 year lease with lease rate increases. This strategy is implemented so that they can increase their rates when the market improves. If the tenant is unable or willing to sign a new lease at the higher lease rate, then the investor can put the property back on the market at the higher lease rates.
Furthermore, a smart investor knows that when market lease rates increase, then the market value of their property also increases. Consumers are starting to spend more and more on good and services than over the last few years. In addition, the unemployment rate in Arizona is currently below the national average. Therefore, purchasing a commercial property at today’s prices is becoming more and more attractive. If you wait until the “Wall Street Journal” states purchasing commercial real estate is a smart investment, then it’s too late!!
Give us a call TODAY if you are considering purchasing Phoenix commercial properties.
Contact: Sean Heideman, Broker ~ Position Realty ~ 480-213-5251