Featured Columns

Strong demand for investment CRE


Barry StuartIn a couple of my earlier blog posts: “Five key benefits of commercial real estate investing” and “Mainstream media’s obsession with the equities market” I discussed why commercial real estate is a viable investment vehicle.

It is surprising to some that in spite of the current tepid economy, our demand exceeds available product and is causing compression of some cap rates. There are a few reasons for this.

Let me explain.

Need to qualify demand

It is important to emphasize strong demand exists for investment real estate. When I am asked how our market is, I always need to provide an answer that does not generalize.

We still have vacancy in the office and industrial sectors that has been sitting for a while. It is expected it could take some time yet to absorb that oversupply.

It does not mean our entire investment market is strong

Although demand is strong, investors are cautious. If it is an office or industrial property with significant vacancy, it will likely be looked over.

If, however, the tenant base is relatively strong with reasonable remaining lease terms in a good location with a clean environmental history, we can sell it.

Interest rates are a major factor

Obviously, low capitalization rates are likely to exist only within a low interest rate environment. I made a decision many years ago to not attempt to predict at any given time which direction interest rates are headed.

There does seem to be a consensus among economists that rates are unlikely to rise significantly in the near term. That tells us Saskatchewan commercial real estate investment demand could stay strong.

What are the alternatives?

I ask you that question. Where do you have confidence that you can place your hard-earned money and see a reasonable return?

We see much volatility in equities and dismal returns from GI’s and bonds. When it comes to investing there is no such thing as a sure thing, but diversity is the key to balanced risk.

A great time to sell

So what’s my point here?  If you have been considering selling your piece of “A” or “B” commercial real estate, why not let us provide you with an estimated market value?

You might be surprised how much equity you have accumulated. We always advise you assess your situation fully before deciding to sell.

Some questions to ask yourself: what are the after-tax net proceeds; is there a mortgage payout penalty; given my age and tolerance for risk, where is the best place to direct my sale proceeds?

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Barry Stuart

About the Author ()

Born in small town Saskatchewan, I began my real estate career in Saskatoon at a really early age in 1978. Although I can’t claim to be No 1 in North America…I hold bragging rights as the recipient of the 2008, 2009 & 2011 Top Producer Award for ICR Commercial Real Estate agents. As a broker licensed in Saskatchewan, we specialize in office and industrial leasing as well as commercial investment sales representing international, national and local clients. Some Previous Experience: Served on the Board of Directors of the Saskatoon Real Estate Board as Vice-President as well as Chairman of the Public Service, Arbitration, Membership, MLS and Public Relations Committees; Chair of St. Philip Neri Parish Council; Member of Canadian Ski Patrol System. I am a member of the Greater Saskatoon Chamber of Commerce, St. Philip Neri Parish, Saskatoon Club and the Saskatchewan Professional Marketing Association My wife Franki and I have five adult sons (we’re just beginning the grandparent stage of life). My interests include road cycling, Nordic walking, Pilates, downhill skiing and RV’ing.

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