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The Internet Revolution Changes the Face of Investing in Commercial Real Estate

June 15, 2015

The US economy continues to make a slow but steady recovery, making it an ideal time for investing in real estate, says real estate investing guru Marco Kozlowski.  The market is currently a bull market with no signs of wavering.  For anyone new to investing, a bull market means a market where values are going up.  The opposite of a bull market is a bear market and both metaphors are derived from the way each animal fights.  Bulls swipe their horns in an upward motion signaling the upward direction of the market.  Bears claw downwards signaling a market that is going down. 
                Many people are afraid the current bull market that has been going strong for the past five years is getting to the point where it will start to downturn.  However, there is no evidence for anything that would cause that downturn.  There would have to be an upset to the economy completely unpredicted by modern economists such as a sudden upswing in interest rates.  However, interest rates are predicted to only increase at a steady, slow rate in the near future.  The economy is not strong enough for lenders to risk pushing interest rates too high and losing what confidence the market has gained.  Also many major banks have purchased some of the government’s debt keeping them well-funded and undesiring of pushing interest rates to boost profits. 
                The economy is not booming, but it is strong and continues to grow stronger each year.  Companies are doing well, offering economy boosting profits, hiring new people, and expanding their offices.  Supply for commercial real estate remains generally low so demand is high, making for good investments.
                The age of the internet and new technologies is starting to have a major effect on the real estate markets.  Many consumers are now more interested in doing their shopping through online shopping rather than in-store.  This means the age of the supermalls and big shopping centers has past and investing in that type of supercenter is becoming obsolete.  The shopping centers that are continuing to do well tend to center around attractions that are hard to replace with the internet such as grocery stores and big movie theaters.  Most of the stores tend to be restaurants or niche shops that offer options that are either hard to find online or are still cheaper to be purchased in-store.  People interested in big commercial real estate need to direct their focus to these types of centers that are still drawing a crowd rather than trying to invest in the traditional mall. 
                Additionally with the focus on online purchasing over in-store purchasing, many companies have to ramp up their online presences.  Some only use the internet for marketing purposes but many are now using their stores more as showrooms for their items with their bulk of products and sales being made through online purchases.  This also sets up a different type of building in demand than before.  With most of the work being done online, businesses are looking to have smaller stores only big enough to have a simple selection of their products and a few employees.  Commercial shopping centers, then, that have many smaller offices for sale are looking at better investments as the demand will be high.  Additionally, the greater amount of tenants can offer a greater margin for profits.
                The internet revolution is also affecting the way investors make their investments.  Crowdfunding is becoming huge across all markets.  Now people with only a small amount to invest can put money down for big commercial real estate projects.  Developers who use crowdfunding can use it to avoid having to take up a loan from the banks, or less of a loan to cut out having to pay interest and in return allow a large group of crowdfunding investors to each have a small stake in the project.  Crowdfunding allows the everyday person to make their own choices when investing and can be done in amounts that are affordable to the everyday person.
                Lastly, people are returning to the cities in droves.  Suburban centers continue to do well, but cities have seen a large up-swing in public interest.  With the concerns for the environment and personal health and fitness, people are migrating to cities where public transportation and the ability to walk wherever anyone wants to go have become big draws.  Also cities have the benefit of being packed with people and therefore draw in more attractions than suburban areas.  People wanting to be entertained are moving back to the cities to be closer to major shows, festivals, performances, spontaneous events, and more. 
Cities also attract a greater variety of attractions.  In our increasingly globalized world, people want to be able to experience more of what the world has to offer but with the convenience of not having to leave their city.  Traditional suburbs and rural areas often only offer a narrow spectrum of restaurants, arts, and entertainment.  Big cities have the luxury of a diverse population and can offer a much broader variety of attractions.  The popularization of “hipster” attitudes also changes the way investors should be looking for urban properties.  The lack of new building space requires investors to pick older, rundown properties to flip and rebrand.  Due to the hipster trend, even properties in less-favorable neighborhoods, if redeveloped properly can be turned into highly successful commercial and residential properties.