What Impact will the Stock Market Fluctuations Have on Commercial Real Estate?


When it comes to the stock market, most experts look at the historical trends. Part of making history is breaking records and watching a bull market stretch into unknown territory. But sooner or later, a major stock market crash could devastate residential and commercial real estate. Job growth, tax reform and stock market corrections all weigh heavily on the minds of investors. Many investors wonder what impact will the stock market fluctuations have on commercial real estate?  According to a timely article by Inside Business, there are four phases of the historical commercial real estate cycle. Commercial real estate tends to go from transition to growth, plateau and then crisis before swinging back to transition again. Some experts believe the commercial real estate industry is currently in the plateau phase with a crisis on the horizon. Self-help author and motivational speaker Tony Robbins points out that 2018 is the ninth year of a bull market. In 2017, he wrote a book, “Unshakeable,” about the biggest mistakes investors make. According to a piece by forbes.com, Robbins emphasizes diversifying as a way to win even during stock market volatility.

Using real estate to guard against losses

Robbins points out people need to diversify on several levels. He recommends diversifying within asset classes as well as across the different classes. In addition to investing in real estate, in general, make sure to invest in residential as well as commercial. When it comes to stocks, choose individual stocks that are small-cap (capitalization) as well as mid and large-cap stocks. If a domestic stock plummets, your stock in an international stock could save your portfolio.

Getting into the game and staying put

No one knows for sure whether the stock market correction will herald in a bear market or reverse so that investors enjoy even greater gains. The biggest make people make is not getting into the investment game. They wait, but the time is never right. According to the Inside Business Story, it might be a good time for some commercial real estate investors to sell, but don’t forget about the new tax reform laws that help commercial real estate investors. It’s best to consult with real estate professionals to get a grasp on whether it’s a good time for you personally to buy or sell commercial real estate. Much of it depends on your current portfolio, time horizon, age, goals and net worth.

Understanding new tax reform advantages

Experts point out tax reform help investors. While every day workers can’t deduct their work expenses or enjoy the same deductions, investors keep their deductions on interest expenses. Also, the time commercial property owners can depreciate a property has been reduced from 39 to 25 years. Also, some real estate expenses are completely deductible in the current year. Also, real estate investors enjoy the 1031 exchange rule that lets them defer capital gain taxes when selling as long as they reinvest the money into other properties.

Some of the signs to look out for if you are worried about a commercial real estate correction include accelerated inflation and higher interest rates. Some worry that rising rates means lower property values, but others cite historical data that shows property values continue to increase as inflation rises. If banks tighten lending, it will make it more difficult for some investors to get into the commercial real estate game. Don’t let the euphoric stock market gains and favorable tax reform rules lull you into a false sense of financial security.

At Lee & Associates, we provide commercial real estate brokerage services as well as appraisals, management and other real estate services. For more information about the impact of stock market volatility on commercial real estate, please contact us.

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