The past few years have certainly been full of surprise and uncertainty. This year, it is no different. The cost of goods has increased tremendously, and it’s affecting more than gas and food. With more people wanting to invest in real estate, it’s best to identify the effects of inflation on commercial real estate (CRE).

Despite this hurdle, investors found new ground to cover. For instance, in September of 2021, a report was made by KTAR News in Arizona: it was reported that many out-of-state businesses ventured into the valley to take advantage of the more affordable commercial real estate costs. These new investors brought momentum to pursue new construction, aiding the CRE market.

Plus, you must take into consideration the actual cost of labor. An unknown variable is time; although there may be a preferred timeline, one must take into deliberation the possibility of extra time.

The benefits of inflation lie in the terms rate. Being able to gain above the inflation rate will result in a valuable income; though this may not be apparent immediately, the results certainly show over time. Creating short-term leases, if applicable, creates an opportunity to raise rent prices.

In places where new construction is not frequent, looking into current commercial real estate can still prove beneficial. Less options for property leave tenants with no choice than to work with what is at hand. This leaves yet another opportunity to take advantage of a rent increase in order to gain profit.

These lenders are unrelated to major banks, and provide an overall better experience. Unlike traditional banks, the alternative lender may have a better ear when it comes to understanding your CRE goals. They can offer short-term construction loans to long-term financing. Plus, these loans are often approved at a higher speed, so there is nothing to slow the building process.

Taking part in this dynamic market requires awareness of the precautions to battle inflation. As a borrower, your lender may increase commercial property mortgage rates to balance loss from inflation. These concepts are crucial to understand as inflation continues.

Applying to construction mortgages may also be a more complex situation. As stated previously, time is not a constant variable. The lender may be more hesitant to grant this allowance due to a higher risk of extended time and labor, as well as materials. Not only this, new construction buildings are not yet tangible, therefore one may have a harder perception of estimating the amount of materials needed.

In a time of inflation, be prepared to work with lenders who are more cautious of risk due to the rising cost of goods. Understand that alternative lenders may be more lenient and appreciative when it comes to constructing your CRE ideas. Finally, keep in mind that lenders may also take extra caution due to higher risks.

The Future of CRE

The demand and popularity of commercial real estate has emerged and continues to grow in 2022. With more finances to expand and invest in new construction, investors have been finding more opportunity to take the leap.

The saying “better late than never” heavily correlates with the commercial real estate market. Despite the continuous inflation rate, now is the peak time to begin investing in CRE. Expenses continue to grow as the year moves along, and there is no determining when it will slow.

Reprop Financial is prepared to solidify investors goals in commercial real estate. Give us a call today!