With the pandemic ending, the commercial real estate market is on the rise, and property demand is at an all-time high. There are a number of cities right now seeing a real estate boom, and secondary markets such as Austin, Texas or Boise, Idaho are becoming popular investment hubs.
For new investors, the question of what to look for when investing in commercial rental property often arises. Of course, the answer depends on the type of rental property one is looking to buy, said Ethan Freilich, a Financing Expert who works in Debt, Joint Venture, & Structured Capital at Lev. For a retail center, for instance, Freilich said, “you want good foot traffic, and you really want to be in an up-and-coming area where the median income is a certain dollar amount.” Factors, such as population growth, rising local home values and home prices, and a booming housing market, ensure people will be walking by your store and spending money.
It also makes sense to speak to a tax attorney before choosing a state to invest in because, Freilich pointed out, red states and blue states often have different tax laws and business regulations. “More liberal states have more regulations, and a lot of times higher taxes for business owners and real estate owners, so that plays a role in an investor thinking about where to invest their money,” Freilich said. It’s also important to look at population growth, job growth and rent growth, said Grigoriy Azayev, Executive Managing Director at Stelth Commercial Real Estate Group. If the population of a city is rising, and the job and real estate markets are booming, that’s generally an indication it would be a good city to invest in.
Other factors to research before choosing a city to invest in include real estate property appreciation and economic growth.
There are a number of up-and-coming cities, along with already established, primary cities in the United States that would make for great opportunities in commercial real estate investment. 2022 so far has proven quite lucrative for real estate investors across the country and, for now, the real estate market is still on the rise.
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Texas as a whole is seeing a real estate boom right now, with Austin — often considered a “secondary city” — becoming a popular locale.
“Austin has had a lot of population growth over the last couple of years,” Azayev said. “Job growth there has been substantial. Income has risen, and they have great tax loopholes, I guess you could say.”
Not only that, but Google has recently opened a headquarters in downtown Austin, bringing an influx of jobs and employment growth into the city.
Freilich, too, places Austin in his top five list of cities to invest in. Since 2010, home values and home prices in Austin have doubled, and the unemployment rate remains low. Rents are also on the rise, which means more money for property investors in this lucrative housing market.
Boise maintains excellent records for long-term profits on commercial real estate investment, according to Norada Real Estate Investments. Home prices are consistently rising, even during the pandemic.
Freilich described Boise as “a very hot market right now, because it’s a growing area.”
Currently, Boise’s population growth and job growth are triple the national average, and the cost of doing business remains low for now, so it’s a good time to invest in rental properties here.
Tampa is also rapidly growing in terms of population growth and home values. According to Quicken Loans, the 8-year population growth rate of Tampa has been 12.69%, and the 7-year equity growth rate was 106%.
Tampa’s economy is booming, and its job growth rate is 71% higher than the national average. Tampa is also home to four Fortune 500 companies that bring jobs into the city.
“Tampa, Florida is an example of a secondary market that we’re seeing real estate investors start to invest,” Freilich said.
Not only that, but the warm, sunny weather is a major draw for home buyers and tourists alike.
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Azayev listed Charleston as one of his top cities to invest in, also because it is one of the fastest-growing cities at the moment in terms of population growth and real estate home values. According to BiggerPockets, rent in Charleston increased by about 6% in 2020, making the city a great opportunity for investors.
The housing market in Charleston is always growing, and the population has gone up by 18.5% in the past two years. It’s also a good vacation spot, drawing in hordes of tourists each year.
It’s nearly impossible to have a list of the best cities to invest in without including New York, an international gateway market. Although real estate investment costs and property prices are high, New York is a primary city that will always be on the rise, and so there’s always a good return on your investment and high rental yield.
Azayev called New York “the number one real estate market.” Although many left the city during the pandemic, bringing rent prices down for a bit, the city is coming back, and the population is growing once again. Azayev is confident that everyone who left New York will be returning, other than those few who would have left for other reasons anyway.
“In terms of investment, the amount of rent, the occupancy levels, appreciation and upside, there’s no city like New York,” Azayev said.
And of course, with real estate costs still somewhat lower than they were pre-pandemic, right now is the best time to invest — before those prices go up again.
Orlando is another Florida city with booming real estate markets right now, for commercial properties, multifamily buildings and even single-family rentals. One quality that helps Orlando is the tourism industry, with people from all over the world flocking to Disney World and Universal Studios all year long.
With tourism comes an influx of jobs as well, which in turn boosts the housing market and year-over-year rent growth. According to Norada Real Estate, “Tourism and job market growth [in Orlando] in leisure and hospitality are creating a large share of renter households with population growth at 2.4% and household growth at 3.4%”
Investors also have options in terms of what types of renters to target for a rental property, as there are both long-term residential rentals, as well as tourism rentals. Currently, Orlando has a strong renter’s market. Over 60% of the population rents, and the median rent per month is around $1,599.
The Carolinas are generally a great region to invest in a rental property right now, Freilich said, particularly Durham, North Carolina. The housing market in Durham is on the rise, and has been for quite some time.
Median home prices in Durham are just over $250,000, and the city is home to Duke University and several other colleges and universities, creating a large number of student renters.
“Nashville is another big area that’s growing,” Freilich said. In the past year or so, home values in Nashville have gone up by 9.6%, just slightly below the U.S. average of 9.9%, but showing a steady increase that indicates positive change.
According to Rocket Mortgage, “Nashville has ranked in the top 10 metro areas for jobs and economic growth over the last few years.” In fact, The Wall Street Journal claimed that Nashville has the “second-hottest job market” in the country behind Austin, Texas.
Nashville is also a popular tourist destination, known for its restaurants, bars, live music and nightlife, creating a high rental yield as young professionals flock to the area.
Grand Rapids is an oft-underestimated real estate market in the U.S., and Forbes called Grand Rapids “the fastest growing city in Michigan and one of the fastest growing in the Midwest.” For this reason, now is a great time to invest, as home prices are going up, and the sales-to-list price ratio is above 105%.
In 2020, home prices in Grand Rapids rose by 7% year-over-year, with the housing market still on the rise.
In Denver, rental properties have been steadily increasing in value over the past few years as a result of job growth and tourism in the city. Currently, the Denver unemployment rate is under 3%, and the city consistently has an unemployment rate below the U.S. average.
One of the reasons for the low unemployment is that Denver is home to seven Fortune 500 companies, keeping the job market booming and the influx of new residents high. Rent is also increasing at a rate of about 3% per year.
What all of these cities have in common is they are all seeing substantial growth in 2022. This trend includes population growth, job growth, growth in property value and rent growth and signifies what phase of the real estate cycle each city is in. As Freilich mentioned, there are certain factors to consider that are specific to the type of commercial property you are looking to purchase (for instance, foot traffic for retail centers), so it’s important to do your research as it applies to your investment.
As a whole though, these 10 cities would make for a great commercial real estate opportunity for any investor.
