Big Reasons Why the Commercial Real Estate Buyer Base is Growing

Commercial real estate has a storied history of being a solid investment during all kinds of economic climates. Both domestic and international investors are always looking in the U.S. for viable spaces to invest capital in. In recent years the commercial real estate market has topped $425 billion annually. Commercial investment also offers a number of ownership benefits, including; stability, portfolio diversity, cash flow, and appreciation. Read below for a closer look at some of the top reasons why investing in commercial real estate is increasingly attracting a broader investor base to the sector.

Return on Investment: Commercial real estate returns are very attractive compared to; stocks, bonds, other commodities such as gold, or even other real estate. The National Council of Real Estate Investment Fiduciaries (NCREIF) measures performance of commercial properties has reported an average annual return on investment of nearly 9% over the past 15 years. By comparison, this is 200 basis points above the average performance of the S&P 500 for the same period.

Utilizing Depreciation: Depreciation decreases the accounting value of the physical structure of a real estate asset as most asset's value decrease over time. Simply, building improvements to a large property may be depreciated over a 27.5 year period in the  accounting method known as the “straight line depreciation.” Some improvements may be depreciated over a period of only five years. Real estate owners can utilize the quicker depreciation as a tax benefit tool, which allows an investor to utilize a passive “loss” from depreciating improvements to offset other passive income. The net result in doing this is a higher after-tax yield.

Provides Tangible Assets: Finally, a big advantage of real estate investing is that it is a good way to diversify portfolios that are backed by tangible assets. It's much safer than purchasing a huge volume of shares in a company that may not be around in a year. Commercial real estate will always have a strong demand and provides a product that an investor can quite literally “see and feel.” Commercial tenants may come and go, but typically leases are for 3-5 years providing some long-term security and the property itself will never physically disappear. As we’ve highlighted above, there are many positive aspects to investing in commercial real estate and receiving a tangible asset to back up your money is a big one.