By Faith Ashmore, Benzinga
The commercial real estate industry is grappling with rising inflation and interest rates, as well as other socioeconomic changes that are shaping its trajectory. These challenges have emerged due to a combination of internal and external factors, impacting various segments within the industry. One significant macro problem is the evolving work environment, influenced by the global pandemic and the shift towards remote work. With more employees working from home or adopting hybrid work models, there is a growing concern about the future demand for office space.
The industry is grappling with the transformation of retail spaces into experiential and mixed-use developments to remain relevant in the face of e-commerce competition. However, there will always be a need for certain commercial real estate – especially necessity-based real estate. Necessity-based real estate refers to properties that are essential for everyday living and are often in demand regardless of market conditions. This includes sectors such as healthcare facilities, grocery stores, multifamily housing and more. Investing in necessity-based real estate can be a great tool for investors to build resilience and safeguard their investments against market swings.
Necessity-based properties have historically shown consistent demand even during economic downturns, making this type of investment suitable for even the current market. The inherent stability of demand in necessity-based real estate contributes to the reduction of risks associated with market fluctuations. By incorporating these essential and reliable property types into their investment strategy, investors can effectively diversify their portfolios. This strategic approach allows investors to mitigate risk, protect their capital and establish long-term financial resilience.
Some necessity-based properties are seeing extreme success in today’s market due to unique socio-economic conditions. According to a July 27 article for paid subscribers in The Wall Street Journal titled "The Hottest Real-Estate Play Is in Your Neighborhood," there is a significant opportunity in the commercial real estate sector – particularly in strip malls. Leased occupancy reached an 8-year high of 95.3% in the first quarter of this year, while physical occupancy remained close to its pre-pandemic level at 92.4%. This is because landlords are signing leases faster than retailers are able to move in.
Flexible working is contributing to this growth because consumers are spending more time at home and less time in city centers where their offices are located. Additionally, the migration of approximately 2 million people from large cities to suburbs and exurbs has further boosted the demand for strip centers.
With office occupancy still at only half of pre-pandemic levels, workday lunches have moved from downtown city centers to restaurants in strip malls closer to people's homes. Additionally, personal care services such as massage, chiropractic, medical laboratory and dental services, which are commonly found in strip retail centers, have experienced strong demand in recent years.
First National Realty Partners (FNRP), a renowned necessity-based real estate firm, has established itself as the leader and says it is the inventor of the specific industry. With an impressive track record of success, FNRP has established itself as the go-to investment firm for accredited investors seeking to diversify and navigate the necessity-based market. With over $2 billion in assets under management, FNRP has demonstrated its ability to deliver results for investors. The company’s portfolio boasts an impressive 57 current assets held, showcasing its expertise in identifying and acquiring high-quality properties that align with its investment strategy.
Since its inception, FNRP has distributed over $100 million to its valued investors, a testament to generating returns. Its successful growth is evidenced by the acquisition of over 11.5 million square feet of gross leasable area (GLA) across 23 states, solidifying a national presence and extending reach to diverse markets.
One key component of FNRP’s strategy is to take advantage of looming headwinds in the real estate market, and it aims to acquire numerous properties at significant discounts over the next few quarters. The company believes that it will be able to leverage its cash and stable positioning to step in and significantly increase its holdings even as competitors sell.
As many industry players are looking at selling and drawing down their portfolios, it’s important to understand which firms are prepared. With its focus on recession-resilient real estate, FNRP continues to explore innovative solutions to navigate the current landscape and lay the foundation for future success – accredited investors may want to take note.
This post contains sponsored content. This content is for informational purposes only and not intended to be investing advice.