Investors or business owners who are looking for commercial real estate should be aware that the CRE industry is poised to undergo a transformation due to proptech. In 2017, $12.6 billion worth of venture capital investments were made in proptech, which is real estate technology. That amount was three times what was invested in 2015. There are several proptech companies that are highly funded and developing applications that could change building management and occupancy experiences.
According to Green Street Advisors, commercial property prices are likely to remain stable for the next several months. Furthermore, as the Federal Reserve raises interest rates, there could be a flip in the yield curve, which may signal weaker economic conditions ahead. Data from Real Capital Analytics (RCA) found that year-over-year price growth as of July 2018 was half of what it was in the early part of 2015.
The use of blockchain could simplify commercial real estate transactions as they would be conducted without the need for a third party. This means that someone in California could agree to buy a property or provide financing for a project by delivering the money directly to the buyer or borrower. The ledger that the information is stored on is digital and encrypted to make such transactions safer for all parties involved.
As developers anticipate the next big trends in California real estate, they may look next to the youth of Generation Z. This generation that follows the Millennials consists of people born in 1996 or later. While many members of Gen Z are too young to purchase commercial real estate, the oldest individuals are graduating from university, entering the workforce and developing their own property and investment portfolios. By paying attention to youth trends as well as timeless needs for real estate developments, investors and designers can create projects that will retain their appeal and utility for many years to come.
California residents who enter into commercial real estate deals should understand that they have different terms compared to residential transactions. For instance, individuals may see a term called usable square footage (USF). The USF number lets them know how much space they can use to meet clients or produce goods. Examples of unusable space include hallways or exits.
Commercial real estate investors in California and around the country should not expect returns in 2018 to be as robust as they have been in recent years according to a report from the Mortgage Bankers Association released on June 12. The trade group believes that the combined effects of a multi-year building boom, slowing economic growth and rising interest rates will likely impact returns for the next five years. The MBA says that commercial property returns in recent years were boosted by supply shortages that have now been addressed.
Higher interest rates and increased volatility in the stock market may signal the beginning of the end to the current bull run. Therefore, some analysts suggest that California entrepreneurs should reduce exposure to stocks and put their money into other investment classes. One potential investment alternative is the commercial real estate debt and equities markets within the United States. Doing so could provide stable returns while providing income at the same time.
California commercial real estate investors and owners might be interested in learning that Los Angeles has again made a strong showing in the commercial real estate market. For the third year in a row, L.A. has been ranked as the most attractive commercial real estate market in the U.S. and the Western Hemisphere.
According to Collier International, 2017 was the peak for the U.S. commercial real estate market. However, it is likely that growth will continue into 2018 and beyond. California residents and others who are investing in commercial properties may be able to earn a positive return on their capital. Over the past 20 years, the average return has been 10.1 percent per year. However, it is thought that the average return will be about 6 percent in 2018 and 2019.
In 1978, California voters passed a ballot measure that caps property taxes at 1 percent of the property's original purchase price and limits increases to 2 percent per year. Proposition 13 applies to both residential and commercial properties, but a new ballot initiative would change the state's constitution to tax industrial properties, commercial real estate and land that will not be used for residential development based on their current market values.