Coconut trees survive hurricanes by bending with the wind. Trees that are too rigid, fighting the forces, are often uprooted and destroyed. Similarly, when the market seems to be huffing and puffing, flexibility is key.
As commercial real estate technology advances at an increasing pace, flexibility remains one of the top qualities of investors looking to withstand market uncertainty. Blockchain, artificial intelligence, autonomous vehicles, and the Internet of Things all promise to bring change and opportunity to CRE; it’s important to balance prudence with not being left behind.
While technology advances, so do business owner practices. Younger potential tenants are likely to be seeking commercial real estate using digital methods; it’s imperative to “get with the times” and make sure someone on your team is working to capture this emerging demographic.
Business market uncertainty also means business owners will try to mitigate risk any way possible. Often, this means seeking short-term leases rather than long-term ones. As a CRE investor, it’s time to open the door to short-term tenants. While it may not look good on paper, increasing your net operating income to outweigh the risk of vacant space is necessary to stay relevant—you can always revisit long-term lease options again once a short-term lease ends, depending on the market.
Smart property owners may even take this a step further, filling empty spaces by offering them for free to co-working companies and incubators. Putting people in a building increases its draw for restaurant, coffee shop, and other business owners who can cater to those who are using the space for work.
While giving away space sounds counter-intuitive, filling even half a building with paying tenants is better than leaving it empty. Whether a similar option is right for you will, of course, depend on your level of flexibility.
Use Your Network
As with most things in life and business, it’s your circle that best supports you in uncertain times.
It should go without saying that maintaining your network even when the industry is growing is important; fail to manage your relationships, and you’ll feel the repercussions when the cycle moves into a downturn and the need for capital is high.
If you’ve maintained your network this cycle, you’ll know that many banks have altered their primary business line. Others have merged or even shut down completely. As you work to predict what the end of the cycle means for your investments, knowing where banks in your network stand is of utmost importance. For example, a bank that has shifted focus away from commercial real estate after a merger may no longer be the ideal choice for an investor.
Keep abreast with the movements of banks, firms, and other institutions in your network. With a keen eye set on seeking out ideal partnerships for the shifting landscape, you’ll be sure to find someone with a creative solution to your biggest challenges.
Creative approaches to problem solving have always been the fulcrum of good investment decisions, and they’re strengthened when solutions are designed through collaborative effort. Partnerships with equity providers and asset managers that mitigate and diversify risks are most easily found within a well-maintained network of mutually benefiting parties.