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Commercial Real Estate Better, Safer Than Stocks

Posted by Staff Reporter on Mar 23, 2016 09:46 AM EDT
First Anniversary Of Help To Buy more big
A estate agent's board is seen outside a property on October 8, 2014 in Bristol, England. On the first anniversary of the introduction of second phase of the Help to Buy scheme, which provides a government partial guarantee on high loan-to-value mortgages, a new survey from the The Centre for Economics and Business Research (CEBR) claims that house prices in 2015 are set for their first decline since 2011. (Photo : Getty Images/Matt Cardy)

Commercial real estate has become the fourth largest asset class in the United States behind stocks, bonds and cash. Over the last few decades, however, institutional investors represented only 10 percent of their holdings with regards to investments in commercial properties.

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The typical individual investor's portfolio revealed that there was often a big hole where commercial real estate is tackled. According to NAIOP, for most investors, this particular asset class is relatively unknown.  

Previously, strict barriers to entry made direct commercial real estate investments only available to a specific group. Fortunately, real estate crowd funding has made it possible for a broader set of investors to have access to this valuable part of the real estate market.

Commercial properties have generated income in the form of rent from tenants and pay when the property is bought. Investors realized returns from property income, less any operating, maintenance and financing costs.

Commercial real estate had set itself apart from other investment forms on several points. Many of the counts that made it unique were also what made it appealing to investors in the first place. There were various key areas where commercial real estate outperformed other asset classes.

The most dynamic area was volatility, according to Forbes. The stock market had been unpredictable even on the better of days and as economists have seen over the last few months, real estate tended to be more solid. From a global perspective, certain American real estate markets became a safe haven for international investors trying to escape the troubling Asian financial markets.

Compared to stocks, commercial real estate has offered more in terms of movement. Since returns were derived from rental income with price appreciation, commercial real estate often proved to be a safer investment during times of volatility. 

Commercial real estate is defined as any property designed to produce income. This covers everything from office buildings and apartment complexes to shopping malls and industrial areas.

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