These Real Estate Sectors Perform Best In An Economic Downturn, According To New Research From Keyway
NEW YORK, NEW YORK (PRWEB) April 25, 2023 -- Amid the backdrop of economic uncertainty and high interest rates, Keyway released today a new report on how commercial real estate sectors have performed historically during an economic downturn. Keyway, the technology-powered leader in small-scale commercial real estate investing, analyzed which commercial real estate sub-sectors performed best in the Great Recession of 2008 to inform investors which sub-sectors may perform well in the current economic environment.
For months, commercial real estate transactions have slowed as a result of higher borrowing costs and wide bid-ask spreads. This decline in transaction volume has left many institutional investors and family offices on the sidelines until either borrowing costs subside or the bid-ask spread narrows.
“For most investors, a diversified portfolio is a necessity — and usually, this includes a stake in real estate. But real estate is cyclical, and downturns are inevitable,” said Jonas Barre, head of analytics for Keyway. “It’s important to understand which types of real estate best withstand these downturns to build a portfolio with steady assets that can help weather tough times.”
Through data analysis from 2007-2012, Keyway found that company size and exit rates – how often a company leaves a location, thereby forcing the landlord to find a new tenant – were strong predictors of stability in commercial real estate properties during an economic downturn.
Here are the report’s key findings:
Multifamily:
Looking at “months of negative estimated revenue growth” for multifamily properties in a downturn, Keyway found certain types rose to the top as stable investments. Class B properties showed only eight months of negative growth from 2011-2022 — compared with 30+ for other types.
Nursing care, assisted living and residential care facilities:
Nursing care, assisted living and residential care facilities — especially skilled nursing facilities and residential facilities for intellectual and developmental disabilities — showed a much healthier exit rate through the last downturn. Given 70% of people age 65 and older will need some type of long-term care during their lifetime, Keyway expects even more stability in this subsector in the future.
Doctors’ and dentists’ offices:
The sweet spot for both physicians’ and dentists’ offices is the mid-sized, likely regional practices with 5-100 employees. These practices generally remain in their locations, creating long-term stability for their landlords. For example, dentists’ offices with 5-99 employees have an exit rate of only 0.7%.
Interestingly, dental practices are more stable than physicians’ practices, with lower exit rates.
Warehouses:
While warehouses did slightly better than our control group of retail trade and professional services, warehouses can perform better in a downturn relative to other industrial properties.
For example, in the Great Recession, warehousing businesses experienced a 42.4% five-year survival rate, which is higher than its industrial peers.
For additional insights, please view the full report HERE.
Keyway's platform streamlines the commercial real estate transaction process for buyers and sellers, providing efficient solutions such as rapid letter of intent (LOI) generation, thorough on-site diligence and quick closing. Sellers gain liquidity easily, without intermediaries, while buyers get institutional-grade services like expert execution, flexible financing, customized structuring and professional management to make purchasing commercial real estate seamless. The platform gives buyers the same level of expertise and support previously only available to large institutional investors, helping them make informed decisions and acquire properties that align with their investment objectives.
To learn more about Keyway, please visit whykeyway.com
About Keyway:
Keyway is the technology-powered leader in small-scale commercial real estate investing. The company raised over $40 million from leading VCs in Proptech, including Camber Creek, Canvas Ventures, Parker 89, Thomvest, Montage Ventures, FJ Labs, and Crosscut. We use AI and machine learning to make better investment decisions.
Alexandra Elich-Burr, Kingston Marketing Group, 1 8478948596, [email protected]
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