Recessions can be frightening, especially for those who are heavily invested in commercial real estate. With some California consumers having less to spend, investors might be worried about what the future holds. Looking at how commercial real estate has fared during past recessions may help ease some of those concerns.
There have been five recessions during the last four decades, of which Coldwell Banker Richard Ellis (CBRE) has evaluated the past two. CBRE looked at the performance of industrial, office and multifamily real estate from both the 2001 recession and the 2008 recession. It found that multifamily properties — like apartments — performed better than others in both these recessions. Multifamily properties fared better after each recession ended as well, with negative growth trends recovering more quickly than with office or industrial spaces.
A 1998 research paper based on data from the National Council of Real Estate Investment Fiduciaries (NCREIF) found the same was true for multifamily properties during the three recessions prior to 2001. Between 1978 and 1997, these properties were the only form of commercial real estate that averaged annual returns of double digits. Multifamily properties even appear to be doing well during the current recession. Despite fears of mass unpaid rent, 95.1% of people paid their rent in May 2020.
Making large financial decisions can be intense even in the most certain economic times. Whether looking at shopping centers, offices or other commercial real estate, taking the opportunity to move forward in commercial real estate investment during a recession might even feel like too big of a risk. However, one can only minimize risk, not avoid it altogether. Working alongside an experienced attorney who is familiar with commercial real estate in California might prove helpful for investors who are ready to move forward.
