What’s the best CRE property square footage to invest in?
November 29, 2023
2024 is expected to witness significant project completion and the net absorption is also expected to rise in the coming months. One of the most crucial elements of investing in a property is the square footage and most investors are concerned about the right square footage. But there is no right answer to this.
Income generated on a CRE property is directly related to the square footage. However, the best CRE property square footage will depend on your investment goals, property type, and budget. Let’s dive deeper into the typical square footage ranges before you invest in them.
Typical CRE Square Footage Ranges
When it comes to commercial real estate, there is no standard square footage as all the properties are unique and they are used for different purposes. However, some do have quantified averages based on the commercial real estate that is out there. A recent energy consumption survey reported:
The median square footage was 5,400 sq ft.
The average commercial real estate square footage was 16,400 sq ft.
About 71% of the total CRE is under 10,000 sq ft.
Only 3% of the CRE properties are over 100,000 sq ft.
While the data shows the state of the commercial real estate square footage currently, the question remains, which one is the best to invest in?
Investing in High Square Footage Commercial Real Estate
While it is obvious that more square footage means higher cash flow, there are very few tenants who are qualified to fill those spaces which makes them riskier based on the sector they are built for. It will also have a higher commercial real estate CAM.
However, not everyone will be able to invest in the high square footage commercial real estate and it isn’t suitable for one and all.
Investing in Mid-Size Square Footage CRE
The majority of the investors today are getting into mid-sized properties. These lie in the range of 5,000 square feet to 30,000 square feet. It is a relatively safe range since you can easily find tenants to fill the space and opt to subdivide if required.
When investing in mid-size square footage properties, you might also want to compare single-tenant vs. multi tenant real estate and then make a decision. Multi tenant properties generate a higher cash flow as compared to single-tenant property.
Investing in Lower Square Footage Commercial Property
The lower square footage commercial properties are the easiest to fill but they come with a downside. A lot of businesses that first move into these spaces have low revenue and may not be able to survive harder economic situations.
That said, you will also need to find a higher number of tenants for lower square-footage commercial spaces. Some properties do come with an expansion clause that allow tenants to expand within the current building.
If you plan well and choose the right property, any size CRE square footage can generate reasonable returns on your investment. Plus, working with the right firm can make a lot of difference to your returns.
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