Commercial real estate can be a smart play for many interested in creating a sophisticated and diversified investment portfolio.  For individuals and institutional real estate investors alike, identifying an optimal market in which to invest can make the difference in your return.  Real estate generates income through tenants’ paying rent and appreciation accrues when the property’s value increases over time, based on relevant market factors, explored below. Additionally, real estate is a finite resource: When demand within a specific region increases, availability of land and zoning restrictions place hard limits on its availability.

Commercial real estate investments include office buildings, industrial buildings, including factories and warehouses; multi-unit residential buildings; retail, including malls and shopping centers; and raw land, including undeveloped parcels to be used for farming, natural resources harvesting or vacant parcels located within otherwise developed areas.

The best place to invest will be a location where property value is likely to appreciate and rental demand is likely to increase, based on external factors. To determine a hot market for real estate investment, these are a few questions to consider:

  • What is nearby? Formerly less-desirable areas on the periphery of current high-value neighborhoods often become prime real estate when demand for property outgrows current supply. This can create the perfect storm for gentrification, forcing the spillover into these areas and thereby increasing their value based on proximity.
  • Who is living there now? A skilled, educated workforce is another sign of a hot market. These generally attract employers who have demand for office or industrial space.   Increase in employer demand attracts more people who need multi-unit residential.
  • How has the area changed?  Is the population growing or shrinking? The former is a positive indicator for real estate market growth. Additionally, new or significantly improved access to public transportation or highways makes commuting to offices and industrial, or getting to the market, much easier.  The convenience of enhanced transit options can quickly spur growth in real estate value.

2019’s Hottest Markets

Miami, Florida:  The Miami metro area took a hit during the subprime mortgage crisis and in recent hurricane seasons, especially in regard to its housing market, but it’s now poised for a comeback. According to Zillow, residential home prices are climbing in 2019 as a result of increased demand, likely resulting from plummeting unemployment rates. With better employment rates comes more opportunities for businesses to grow and succeed, driving commercial real estate development.

Detroit, Michigan: Detroit’s once-blighted downtown has been revitalized under significant investment and is creating its second chance. JPMorgan Chase made a $100 million, five-year investment in the city’s economic recovery and many corporations have committed calling Detroit their home. Rather than being driven by increased population and a booming demand for real estate market, Detroit’s need for industrial properties is driving its commercial real estate growth. The region’s laxer regulations and lower taxes make it attractive to companies looking to do business there.

Raleigh/Durham, North Carolina: While a significant number of cities in North Carolina are experiencing population decline, Raleigh/Durham is entering a boom. Younger residents are moving to the area, equipped with tech-forward job skills, buying and renting homes, and keeping unemployment rates low. These economic growth indicators bode well for the region’s commercial real estate market as demand grows and supply shrinks.