Buyers’ Market – Phase (I)
In each of these market phases, you will find one unique characteristic about them that will help you to easily identify them. In Buyers’ Market Phase (I) you will find a market oversupplied with commercial properties. Supply is a key force in the market that causes it to go from boom to bust and back again.
Whenever the market is down, an oversupply of properties will be present. Market conditions don’t change in the blick of an eye. They take time, months to years, to change. Unfortunately, investors don’t act in the same manner. They react to what is happening now. They invest money into new construction beacause the market conditions are favorable, now. But these new starts can take a year or more for the plans, permits and construction to be completed. During this construction the market slowly begins its course correction and demand starts to level off and by the time the job is finished, the market is in decline. This happens all over the US and the world at the same time! Now there is this big glut of properties available and they are priced too high! Why? Because they were built when the prices were high, therefore, their costs were higher as well.
Now your supply greatly outweighs the demand and investors begin to slash prices. And to make matters worse, this phase of the market coincides with stagnant or negative job growth in the area. As the market continues to recede, companies stop expanding and begin to lay off workers. Retail growth drops, more office space becomes available and there are more vacancies in apartments; all characteristics of an oversupplied market.
As more and more commercial space comes online, owners and investors will be desperate to have any source of income and continue to slash rates just to get their space filled! The second factor in this phase is job growth, the first was supply. In the Buyers’ Market Phase (I), there is no job growth. The jobs started leaving the area at the end of Selleres’ Market Phase (II). At the beginning of this stage, jobs losses are still taking place.
The market will come to a point where unemployment peaks and investment property values will have declined to their lowest level of any phase in the cycle. For any area to move into the next phase, Buyers’ Market Phase (II), its leaders must to something to increase employment opportunities. If they create jobs, people will begin to move back into the towns, increasing the population, vacancies begin to fill and rents slowly begin to climb.
Each city has a Master Plan. This helps the leaders of the community to follow the necessary steps to facilitate growth. Contact your local community, the economic development committee, and speak with them about their Master Plan. They are usually more than happy to speak to potential investors in their area about their plans to revive the community. Make sure you look to see when the Master Plan was last updated. Is it new or is it one of those plans that took years to develop and nobody follows? If it was written over 5 years ago, chances are you do not have a very proactive leadership group. Also, see if they have ever taken action on their plan or is it a work of fiction.
the plan will have many areas called revitalization zones. These are the areas in the community that are filled with obsolete buildings and downtrodden. The leaders usually have a plan to creat growth in these areas. It can be a great place to invest, but only if the city has or has plans to spend significant money to make its plan a reality. If the city isn’t or hasn’t been willing to spend money there, keep your hands in your pockets!
