An office building investment can be incredibly lucrative. That said, it is not without risk. Successful investors know how to identify and mitigate risks. You need to understand the potential pitfalls and plan to deal with them. This post will cover some of the risks of office building investments.

Risks to Avoid in Office Building Investment

Leasing Too Much to One Tenant

It might seem like a dream come true if one tenant wants to lease a significant percentage of your space. You won’t have to worry about finding several tenants to take what the single tenant wants. It could also do a lot to simplify management since you’ll only be dealing with one tenant. However, it creates a significant risk if that tenant decides not to renew their lease. You’ll suddenly have a lot of vacant space and a substantial loss of revenue.

Local Market Trends

The local market can be an obvious risk to office building investments. For example, shifts in supply and demand can have a significant impact. A new office complex could go up in the area and flood the market with supply. Changes in the local economy could reduce demand for the type of office space you own. Property owners must watch the local market for developments affecting their investments.

Timing of Lease Expiration

Some investors might have risks associated with the timing of expiring leases. If you are not careful, you could come to a point with many leases expiring near the same time or simultaneously. When this occurs, it could create the risk of having a surplus of vacant space. Along with needing to find new tenants, it will cause a revenue gap. You should try to put time between the expiration of tenant leases.

Liquidity Challenges

While office buildings can offer steady returns from leases, they are illiquid assets. It takes a considerable amount of time to sell most properties. You’ll need to search for the right buyer and spend a long time on negotiations and due diligence. It makes turning the asset into cash difficult if your financial needs change.

Leverage Risks

Borrowing is a part of buying commercial real estate for most investors. While it can be a great way to expand your purchasing power, there are risks. For example, an economic downturn could result in mass vacancies. The investor will still need to make debt payments even when revenue is low. In the worst situations, there is the risk of default. While debt can help you grow, it is essential to avoid over leveraging your business.

Are you ready to invest in the Columbus, GA, commercial real estate market? Click here to contact the Cummings Commercial Team. We are a dedicated team of local real estate experts who serve the Georgia and Alabama commercial real estate markets. Reach out now to learn more about how we can help.

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