Real estate is a well-known asset class that has been used to build wealth for centuries, defend against inflation, and is sometimes referred to as recession-resilient. Commercial real estate investments can show more resilience than other investments during a recession, but not all asset classes of real estate investments will be able to weather the storm.
The COVID-19 health crisis has unleashed unprecedented economic uncertainty, not just in the U.S., but globally. In the post-COVID era, many jobs have gone remote or hybrid, which resulted in office space and retail suffering in many major cities. This has given a bad rap to "commercial real estate" in the past few years. But it is crucial to realize that, commercial real estate is a multifaceted asset, which offers diverse types of properties for different purposes. Some types of assets will do extremely well during a recession, while some will lose money and might get foreclosed.
The kind of properties likely to best perform in a recessionary environment will have most of these five characteristics:
- Good Location
- Solid Fundamentals
- Strong Demand
- Sufficient Cashflow
- Low Operational Expense
So, what are some examples of recession-resilient real estate?
- Self-Storage Facilities
- Medical Office Buildings (MOBs)
- Mobile Home Parks
- Suburban Multi-Tenant Office
- Industrial and Warehouses
Many opportunities will present themselves in front go you during a recessionary period when others are fearful. Thriving during tough economic times is possible if you are ready to pivot and dare to think outside the box. Remember that these assets are the right fit for investors who focus on long-term wealth generation rather than making quick bucks in the short term. You can still thrive during the volatility in recessionary times by carefully crafting a recession-resilient portfolio and taking conservative measures toward -
- Tenant Retention
- Cost-cutting
- Property Improvements
- Renegotiating Lease Terms
Conclusion
When it comes to recession-proof commercial real estate investing, the possibilities are endless. With the current economic climate more unpredictable than ever, there is no better time than now to invest in real estate. Investing in real estate allows you to diversify your assets, take advantage of tax benefits, and secure a steady income stream for years to come.
Therefore, if you’ve been considering investing in commercial real estate, it’s important to ask the right questions and find the right partners to help you with your investment journey.
As I mentioned above, commercial real estate is more than just office spaces and retail. Watch my video to learn about the different types of commercial real estate assets.
DISCLAIMER
The content is for informational and educational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained here constitutes a solicitation, recommendation, endorsem*nt, or offer. Any investment includes substantial risk, please talk to a licensed professional to seek advice on your specific case.
FAQs
Recessions do have an impact on commercial real estate, but not all property types are affected in the same way. Some properties will be at a higher risk of foreclosure, while others can actually yield higher profit margins for investors.
Does commercial real estate do well in a recession? ›
Investing in commercial real estate during a recession can also offer unique opportunities, as property values may be lower and there may be less competition from other investors. However, it's important to maintain a cautious approach and to have a solid understanding of the market.
What type of real estate is recession-proof? ›
Characteristics of Recession-Proof Real Estate Investments
Essential property types such as multifamily housing or healthcare facilities that will continue to be in demand during a recession remain a good investment. Geographic factors can be a significant characteristic to understand in the recession-proof market.
Can real estate survive recession? ›
Buying a home during a recession can sometimes be a good idea — but only for people who are lucky enough to remain financially stable. If you're thinking about buying during an economic downturn, be sure to enlist the help of an experienced local real estate agent.
How does commercial real estate fair in a recession? ›
A recession can lead to decreased demand for commercial real estate, resulting in lower property values. This can create opportunities for businesses to buy properties at discounted prices.
What are the three things that are recession proof? ›
Examples of recession-proof assets
Examples include: Companies with stable cash flow and pricing power, such as Walmart. Industries with stable demand, such as utilities, consumer staples and health care. Commodities like gold.
Is it better to have cash or property in a recession? ›
Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.
Are any businesses recession proof? ›
If any business is recession proof, it's the good, old-fashioned grocery store. These stores sell products that people always need, regardless of economic conditions. According to Grand View Research, “The global food & grocery retail market is expected to grow at a compound annual growth rate of 3% from 2022 to 2030.”
Is being a real estate agent recession proof? ›
As a result, some agents may see a significant decrease in their annual earnings during a recession or need to work harder to earn the same amount. In the end, being a real estate agent may be recessionproof because there will always be a need for this service, but being a successful one may be a lot harder.
How long do real estate recessions last? ›
How long do housing market downturns last and how do they end? According to data from the National Bureau of Economic Research (NBER) going back to 1854, an average recession lasts about 17 months.
Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.
What to do in a recession real estate? ›
Strategies for Homeowners During a Recession
1. Stay Informed: Stay updated on housing market trends and economic indicators in your area to understand how they might impact your home's value. 2. Refinance Opportunities: During a recession, lower interest rates may provide a chance to refinance your mortgage.
What do real estate agents do during a recession? ›
Diversify Your Services
Diversifying services can help agents generate income during slower times and build long-term relationships with clients. Offering property management, real estate consulting, or even home staging services can help agents provide more value to their clients.
Should I sell real estate before recession? ›
Should I sell my house now, before there's a recession? Recessions mean belt tightening and potential layoffs. If your area is hard-hit by job losses, the number of qualified buyers will be severely limited — if you're concerned, it might be best to sell before that (potentially) happens.
What is the outlook for the commercial real estate industry in 2024? ›
Construction starts remain muted, and there are concerns that the volume of new multifamily units delivered to the market in 2024 could lag behind demand. If this trend continues, it has the potential to keep occupancy high, and as the supply of new units remains constrained, rent growth could pick up in 2024.
Is it bad to be a real estate agent during a recession? ›
As a result, some agents may see a significant decrease in their annual earnings during a recession or need to work harder to earn the same amount. In the end, being a real estate agent may be recessionproof because there will always be a need for this service, but being a successful one may be a lot harder.
What is the forecast for commercial real estate in the US? ›
Commercial Real Estate - United States
This projection indicates a significant annual growth rate (CAGR 2024-2028) of 2.66%, leading to a market volume of US$28.18tn by 2028.
What is the outlook for the commercial real estate market in 2024? ›
With fewer new construction deliveries, the fundamentals of this sector will remain solid in 2024. When new supply is constrained, it can lead to tighter market conditions, potentially supporting rental rates and occupancy levels, key components of the commercial real estate sector.
