Updated: May 31
As the world slowly picks up the pieces of the economic downturn that followed the global COVID-19 pandemic, commercial real estate investors are finding a silver lining: new data to analyze.
With on-and-off lockdowns and the normalization of work-from-home, the world watched as offices and hotels closed their doors, sometimes for good. So, who were the winners in the commercial real estate sector? And where are investors redirecting their funds in light of it all?
Here are the top 3 recession-proof commercial assets you should consider in 2022:
Over 30,000 self-storage investors own around 55,000 facilities in the U.S., according to the Self Storage Association. Pre-pandemic, self-storage averaged 3.5% annual growth for over 30 years.
But as Americans needed to create space for home offices, home-schooling, home gyms, and were generally spending more time at home amongst their possessions, self-storage as an industry exploded. Now, occupancy rates and rents are at record highs.
Best of all, owning a self-storage facility is among the more passive real estate investments you make. Once the overhead costs of buying or building a storage facility are taken care of, you only need a customer service manager and some marketing. Your tenants do the rest.
2. Quick-Service Restaurants
While many sit-in restaurants shuttered their doors or severely cut back their services during the pandemic, quick-service restaurants like McDonald's, Taco Bell, Burger King, Subway, and more were by-and-large able to continue operations via drive-thrus and delivery. In fact, demand grew as customers’ options became increasingly limited.
Most quick-service restaurants, or QSRs, are national tenants seeking stand-alone buildings and long triple-net lease terms. Owners of outparcel buildings whose tenants were QSRs faired far better than their formal-dining counterparts.
Thanks to that fact, cap rates in the casual dining sector increased by 14 basis points year over year in 2021.
3. Solar Farms
Whether you believe recent crises in the news are the result of fear-mongering or a very real corner the world is turning, it’s undeniable that the US economy is finally making moves toward clean energy and alternative energy.
Like self-storage, solar farms require a high investment up-front, but once they’re leased to a solar company, they provide a high and passive return on investment, depending on your solar farm’s location.
Like housing, the world will always need energy. And as we saw with the power outage crisis in Texas in 2021 and the aftermath of Hurricane Maria in 2017 in Puerto Rico, the need for alternative energy sources and more reliable infrastructure is more important now than ever.
According to the Center for Climate and Energy Solutions, solar generation is the fastest-growing electricity source.
What’s the Bottom Line?
If you’re looking for an investment that is likely to weather upcoming economic storms, self-storage, solar, and QSRs are looking like attractive options. The world’s needs are always changing, and the winds of change can bring cash flow to wise real estate investors. These three investments are perfect for property owners who want to be mostly hands-off while enjoying minimal risk and high returns in 2022 and beyond.
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