Located on the coast of California, Santa Cruz County includes the cities of Watsonville, Aptos, Pleasure Point, Soquel, and Santa Cruz. With plenty of charming little cities situated close to the ocean, Santa Cruz County is a popular place for tourists as well as those who want to live a life close to beaches and outdoor activities and who want to take advantage of the laid-back culture and beautiful weather.
With a full labor market recovery from the negative impacts of the pandemic expected by the end of the year, a decrease in unemployment rates, and a projected continued job growth over the next four years, Santa Cruz is an excellent place to invest in. Though buying a home or investing in residential real estate is always a good option, buying commercial real estate is also a safe bet in a stable economy that will continue to attract residents and tourists.
Learn more about the commercial real estate scene in Santa Cruz County and how you can get involved.
What is considered commercial real estate?
Commercial real estate is defined as any property used for business activities. This can include shopping centers, office spaces, warehouses, medical facilities, and assembly plants. Commercial real estate can also be defined as any property that is used to generate an income. Under this definition, multi-family residential properties would be considered commercial real estate if it was used to generate money for the owner of the property through leases.
Though there are plenty of examples of commercial real estate, a property generally falls into one of six categories: office spaces, retail properties, industrial/warehouses, multi-family, hotel, and special purpose. Special purpose includes properties such as amusement parks, churches, and self-storage.
What is the current state of commercial real estate in Santa Cruz County?
There is currently a total of 569,005 square feet of office space, 1,452,655 square feet of industrial space, and another 318,300 square feet of office space with retail available in Santa Cruz. More than 80% of the office space is 50,000 to 100,000 square feet in size and more than 20% is considered Class A space. Class A space is defined as premium buildings located in central business districts and is usually the most desirable type of space in commercial real estate. The majority (almost 82%) of industrial space available is in the 100,000 to 500,000 square feet range with most of that space (more than 90%) considered Class B.
Currently, in Santa Cruz alone, there are nine listings for office space, 10 listings for retail space, three listings for industrial space, and 31 listed as “other.”
When it comes to the strength of the Santa Cruz commercial real estate industry, it’s important to note that some areas are faring better than others. While the apartment property industry is about the same as the national market, the office property, industrial, retail, and hotel/lodging property markets are stronger in Santa Cruz than national averages.
What you need to know about investing in commercial real estate
Are you new to commercial real estate investing? Working with an experienced commercial real estate agent is the best piece of advice for those entering the market, as well as those who already have some properties in their portfolio. It also helps to gain some knowledge before starting your search for the perfect property. Here are some things you should know before you take the next step.
What type of property you want
As mentioned previously, commercial property generally falls into one of six categories. It’s much different investing in and owning industrial warehouse space than it is a multi-family property. When deciding what type of property you are interested in, consider the following:
- What are your goals? Do you strictly want an asset for investment portfolio purposes? Do you want to generate an income? Do you want to actively manage leases or rental agreements? Are you looking for a long or short-term investment? Identifying your goals and communicating them to your real estate agent will help you find the right property.
- What are the top performing sectors in the area? The answer to this question will change depending on the local and national economy and other factors. Work with your agent to do research to see which sectors are performing the best when you’re ready to buy.
The market has cycles
When considering the commercial real estate investment world, it’s important to keep in mind that nothing lasts forever. Keeping real estate cycles in mind will help you buy when the market is low and sell when it’s high.
You need to perform due diligence
Before you make a buying decision, you need to do thorough research on the property you are interested in. This includes reviewing profit and loss statements, tax returns, and financials from the previous owner as well as doing property inspections, surveys, and possible feasibility studies. If you’re new to the commercial real estate world, this may seem overwhelming, but your agent can help connect you with the professionals you need to get the research done and interpret the results.
You should have a capital reserve fund
Securing a loan to buy a commercial property is only part of the financial equation. You should also have a reserve fund to account for cost contingencies that may occur after you acquire the property. For example, if you experience higher vacancy rates than you anticipated or your property needs a major repair, you will need extra funds to cover these expenses until the issue is fixed or the property stabilizes.
Ready to invest?
Commercial investment can be very lucrative if you choose the right market and prepare accordingly. If you’re ready to take the next steps, reach out to one of the experienced commercial agents at Zech Real Estate Specialists. They can answer any questions you have and help you find the best property to align with your investment goals.
