2022 has been rife with economic turmoil and uncertainty, much of it caused by the aftermath of the Covid-19 pandemic and its effects on nearly every facet of the global economy. Even as more and more people return to work and businesses begin to bring in more profit, things are far from the way they were a couple of years ago, and many people are still adjusting to a new normal. And this couldn’t be any more true for those involved in commercial real estate investing.
Commercial real estate investing has been an effective way to build wealth for a long time. Its accessibility has allowed many people to diversify their portfolios while ensuring their financial security. The Covid-19 pandemic has introduced some challenges for investors, however, as many properties that once produced significant amounts of income don’t have the same ROI that they once did.
This has made deciding what to invest in much more difficult for those that are trying to break into commercial real estate investing. For those that already own commercial real estate, there may be some uncertainty in the overall security and profitability of their property. The best way to avoid any of these issues with commercial real estate investing is by knowing which properties will likely continue to struggle through this year. While they may increase in profitability in the years to come, anyone looking to invest in the near future may want to avoid the following properties.
- Retail Stores
Retail stores were devastated by the pandemic, with many of them shutting their doors for an extended period of time when case numbers first began to skyrocket. As the pandemic carried on, a large portion of retail stores had to close down completely, uprooting the financial security of everyone from hourly workers to the owners of the property. Now that the pandemic has greatly reduced in severity, one would think that investing in retail stores would be a safe choice to make once again. Still, the lasting consequences of this monumental upheaval have made investing in retail properties less cut and dry than before.
While many retail companies were forced to close their physical stores either temporarily or permanently, many more took a proactive approach. It shifted their focus towards e-commerce as people dramatically increased how much they shopped online while stuck at home. This proved to be a great move for businesses, but for commercial real estate investors, it meant that companies were less willing to commit money to a brick-and-mortar location.
As it currently stands, many former retail stores are expected to be replaced with alternatives such as healthcare and grocery stores in the next few years. So for anyone looking to add retail property investment to their portfolio, it may be best to wait until the market stabilizes and the landscape of retail store investing becomes more apparent.
Alongside retail stores, hotels have also suffered greatly due to the Covid-19 pandemic. All of the lockdowns and travel restrictions prevented people from going out and booking hotels to stay in, considerably reducing the industry’s overall profits. Even with regulations being rolled back and people going on all of the vacations they wanted to while locked inside, the hotel industry has yet to recover fully.
From a commercial real estate investing perspective, investing in hotel properties is much too risky right now. As more and more people try to avoid densely populated areas, hotels located in big cities likely will not be nearly as profitable as they used to be, and smaller hotels likely won’t fully recover for another year. So, for the remainder of 2022, it’s best to avoid investing in hotels as it may become a more significant burden than you were hoping for.
Just as retail stores and hotels struggled due to the pandemic, office buildings witnessed dramatic changes in how they were run from 2020 to now. Primarily, far fewer people actually work in offices now that so many companies have transitioned to a hybrid model that places an emphasis on work-from-home. In some cases, businesses have abandoned their offices altogether, leaving real estate investors with empty suites and fewer companies willing to fill them.
With the demand for offices showing no signs of growing back to previous numbers, it would likely be a better idea for investors to redirect their funds towards other properties until the landscape of office investing becomes clearer. Ideally, more companies will bring workers into the office as case numbers continue to taper off, but there’s no certainty that investing in offices will be as profitable as it used to be.
As these kinds of investments continue to be volatile through 2022, commercial real estate investors would be wise to redirect their money to more secure properties. Warehouses and apartments are examples of real estate that have actually thrived during these tumultuous times, so there are still a wealth of ways to invest in real estate without second-guessing the decision. While it may seem like a risk to invest in anything right now, just keep your ROIs in mind and ensure that at the end of the day, you’re still making money.
About the Author
Roni Davis is a writer, blogger, and legal assistant operating out of the greater Philadelphia area.