Investing in Office Buildings Requires Due Diligence
harkins / December 7, 2016
If you are considering investing in office buildings, it is very important that you do your due diligence first. Accounting for around 20 percent of the total commercial real estate market, the office buildings asset class has generally been the most volatile of all commercial real estate asset classes. This is due to macroeconomic, supply and demand, and property specific factors. To make sure that you are prepared for this investment, you should complete a market analysis and an investment analysis.
A market supply and demand analysis is an analysis that looks to find trends which will help you decide whether or not the building is a good investment. This analysis should be done at both the local and regional level because that will give you a much better idea of trends in the area. A market supply and demand analysis is comprised of two indicators; growth or demand indicators and headwind or supply indicators. Growth indicators looks at the possibility of growth of the space over time. The two indicators that should be looked at are white collar job growth and economic growth. Headwind indicators look at the building itself. These indicators include the vacancy rate, the absorption rate, and the nearby market supply.
While a market supply and demand analysis will tell you trends in office building commercial real estate in the area, the investment analysis will focus on the building itself. When you invest in an office building, it likely has been designed and should be marketed to a particular type of tenant. The three types of tenant bases are specialized tenants, agonistic tenants, and niche tenants. Specialized tenants are those in a building that is focused on a specific use, agonistic tenants are those in a building that sits in a suburban setting, and niche renters are those in a building designed for a particular type of business.
Part of smart investing in commercial real estate is doing your due diligence. The office building asset class is the most volatile of all commercial real estate asset classes so understanding the market and tenants are critical to success. If you are looking to invest in commercial real estate, come see the professionals at Harkins Commercial Real Estate to guide you.
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