While a recession hasn’t been officially declared, many economists believe that the odds of a recession in the upcoming months are high. In this post, we discuss the potential effects of a recession on commercial real estate so you know what to expect should the forecasts prove accurate.
What Is a Recession?
Let’s begin by defining what a recession is.
A common definition of a recession is two consecutive quarters of negative gross domestic product (GDP) growth.
However, in reality, things are a little more complex than that.
Take the current situation, for example. The Bureau of Economic Analysis has confirmed that the U.S. has experienced two consecutive quarters of negative GDP growth, and yet, experts don’t know for sure whether we are in a recession or not.
The reason is that other economic indicators, such as a strong job market, seem to point to a still-expanding economy.
However, some experts are pessimistic and believe that a recession is only a matter of time.
Commercial Real Estate and Recessions
Whether a recession happens or not, it’s always a good idea to prepare for all potential scenarios.
Here’s a recap of the likely impacts of a recession on commercial real estate:
- One of the most immediate and obvious effects of a recession in commercial real estate is a decline in prices.
- This, in turn, creates a buyer’s market. In other words, recessions can be an excellent opportunity to purchase a CRE property: prices are low and you can strike great deals provided that you have the capital.
- With the above in mind, it’s essential to preserve liquidity if you think a recession is on the horizon. Having cash on hand will put you in a particularly advantageous position should the economy enter a contraction phase.
It’s worth remembering that experts are split on the possibility of a recession. The current economic conditions are unprecedented and everyone is hedging their bets for now.
If you own or are interested in purchasing commercial real estate in Southern California and want to learn more about how to weather a potential recession, feel free to get in touch for assistance.
Chantel Aguilar: Your Commercial and Investment Property Expert in Orange and LA Counties
Looking to purchase or sell commercial real estate in Orange County or LA County? Chantel Aguilar maximizes property exposure and works diligently to provide each client and every listing with the resources and time required to drive results.
Contact Chantel by telephone at 562-447-0665 or by email at [email protected] and get the knowledgeable assistance you are looking for.