Commercial Real Estate Investing From A-Z What Are The Pros And Cons of Office, Retail, and Industrial? How To Overcome Fear in Investing?
What are the pros and cons of office, retail, and industrial? What should your real estate agent do for you as a buyer? How to get over fear in real estate investing? Trinity (Trent) Herrera, commercial director and real estate consultant of Black Tie Real Estate, shares his insights.
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The pros and cons of office
Professionals need an office, so it's a staple in downtown areas. A stabilized office can fetch a premium. Some of the most expensive and impressive buildings in the world are office buildings. The cons are that we have a lot of office vacancies, and we have more work-from-home opportunities post-COVID, which completely turned the office upside down in some cities, counties, and towns. We have many cities with a lot of impending office vacancies. However, as another pro, I'm hearing about a lot of discussion about multifamily conversions and turning these office buildings into high-quality multifamily units, which also serve a need. The singular scariest thing about offices as products is being left responsible for the building. If it's 30% vacant or more, that's the single most frightening thing.
The pros and cons of retail
The cons we're talking about here are the opportunities. What scares us are often the opportunities. While the scariest part of an office could be holding the bag, paying the property taxes on a building that's assessed for what it's worth is a little frightening. But when you lease it, when you hold and plan correctly, you have a good team, and you have it for 10 cents on the dollar because it's been vacant, it's a whole different story.
If you want to be extremely safe, you'll put your money in a savings account. If you want a slightly higher risk, you put in a retail triple-net tenant that will give you the mailbox money, but it's at 5%. It goes for everything.
The pros and cons of industrial
The biggest pro for me is that there has been a recent focus on the domestic industry. We have a lot of local infrastructure being built around US-based industries, such as manufacturing, warehousing, new Amazon distribution, data centers, and OpenAI Stargate. A lot of money is being invested in it. There is this sentiment that each country should be able to manufacture its products, and I think we're sensing that now. Hopefully, we continue to see this trend.
Americans love buying things. The same reason that retail works is why the industrial works. So much industry is built around shipping products, getting them from A to B, warehousing for Amazon, etc. Even if people stop going to the retail store, Amazon is always going to need warehouses. There will be many companies providing other forms of distribution and accessory services to Amazon. As long as Americans love buying stuff online or in person, the industry will likely remain strong.
And then there's opportunity. There are a lot of small towns, especially here in Texas, that have 100 to 300,000 people, where you can buy quality industrial for 30 dollars a foot. If you can tolerate a hold and lease it up in a year or two, those deals can be had all day, and there are lots of more stabilized national credit tenant deals to be had. There are all sorts of things that can be found with a propensity for appreciation.
Trent Herrera
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