If you are looking to get into commercial real estate on the cheap, and you have a high tolerance for risk, then going after properties in cities with distressed economies is the way to go.
Joseph Johnson Welfont is always on the look out for distressed commercial real estate throughout North America, as he knows it is a great long-term investment to own a property in a highly desired location, even if times aren’t as bright as they once were.
In this article, we will talk about about cities in North America that are prime pickings when it comes to prime commercial real estate that is under economic stress.
1) Calgary, Alberta, Canada
The sole representative of Canada on this list is also one of the worst affected cities mentioned in this article.
Broadsided by the plunge in oil prices that began in 2014, the oil companies that occupied the many modern buildings in its downtown core have eliminated broad swathes of office space over the last couple of years.
With an unprecedented reduction in staff required to survive the lean times that have been thrust upon them, it hasn’t been pretty.
Expected to be a brief downturn like others before it, prices below $50 a barrel have persisted for more than two years now, driving office vacancy rates to 25%, a level that hasn’t been seen since the bad old days of the 1980’s.
Before it is all said and done, experts say that rates could go as high as 30%, as there are still several buildings under construction that were started before the oil glut began that will only add to the problem.
2) New Jersey
As America’s proverbial whipping boy when it comes to mediocrity, New Jersey also has the ignoble fate of being one of the most impotent office real estate markets in the United States.
Weighed upon by factors ranging from the aftereffects of the Great Recession to its location between two major cities with modern facilities and better transit options, office vacancy hit a statewide average of 24.6% last year.
Tax incentives haven’t been enough to keep jobs from fleeing to NYC and Philadelphia, as employers are looking for perks that will appeal to the Millennials that they are now employing in increasing numbers.
3) Fairfield County, Connecticut
While tax incentives might not be the panacea that can keep office vacancy rates low, high taxes have been shown to be a catalyst that can drive employers to move to friendlier markets nearby.
Fairfield County in Connecticut has had this unfortunate experience, as it has lost numerous big companies to cities like Boston over its high commercial tax rates.
With a vacancy rate of 24.4%, they may have to re-think how to raise revenue if they hope to attract new tenants to move into their increasingly empty class A office space.
4) Cleveland, Ohio
Like many long-suffering cities in the Rust Belt, Cleveland has endured a decades-long economic contraction that has left many of its once-bustling office buildings eerily silent.
Things have been evolving in the Forest City lately though, as several of its mostly empty buildings in prime locations downtown have been converted to mixed-use residential properties.
Case in point: the East Ohio Gas building, which was converted into a condominium complex with 223 units in 2013.
Activity such as this has lowered Cleveland’s vacancy rate to 19.6% last year; that may sound high, but for this beleaguered city, it is a big step in the right direction.