Real estate companies will need to reinvent their strategies in 2017 to prepare and respond to the changes in the macroeconomic and built environment. Specifically, companies will need to:

Consider the influence of technology advancements, urbanization, changing consumer preferences, security, climate change, and resource scarcity concerns on real estate decisions.

Leverage technologies such as the Internet of Things, cloud computing, mobility, 3D printing, and advanced analytics to be innovative with respect to locating future developments.

Resolve integration issues with legacy systems while adopting new technologies.

Adopt a targeted and multipronged cybersecurity strategy that is secure, vigilant, and resilient.

Drive innovation by partnering with existing startups, establishing research and innovation labs, and creating corporate accelerators.

Invest in the tools and talent to respond to the changes in the ecosystem at a desirable pace.

The future is uncertain for foreign investors, who poured cash into U.S. commercial real estate as the dollar appreciated and overseas economies wobbled, according to the report. China has hinted at increased controls on capital outflows, lower oil prices could curtail investing from the Middle East and Canada, and concerns about U.S. policies after the presidential election make continued investment from other countries far from guaranteed.

Commercial/Residential

Valuing a residential property is done by determining what other similar properties are selling for. Many more residential properties sell than commercial properties, and it is usually easy to find sold residential properties that are like a house you own or are looking to buy. Valuing residential properties based off the sales of other residential properties is called the sales comparison approach.

Commercial properties are rarely valued using the comparison approach, because there are much fewer commercial properties and it is hard to find similar properties that have sold recently. Most commercial properties are valued using the income approach, which is much more complicated than the sales comparison approach.

Commercial properties typically have much longer leases than residential rentals

Longer leases can be a good thing for investors, but there is a reason commercial leases are longer. Commercial properties typically take longer to rent and are harder to rent than residential properties. Landlords want a longer lease in place on commercial properties, because of the difficulty in leasing commercial. When a commercial property goes vacant, it can stay vacant for months or even years. This is also why the cap rate varies so much with commercial. An investor must consider how long the current lease is and how stable the current tenant is. A ten-year lease is great, but even ten-year tenants can go bankrupt and you are left with a vacant building. Since commercial buildings are usually very specific to the tenant, it could take a long time to lease or a lot of work to retrofit a building for a new tenant.

Even though commercial real estate can be a very tricky business to be in, there is opportunity to make a lot of money. There is no black and white valuations of commercial properties because there are so many factors to consider with cap rates. That means the people who really know what they are doing can spot good deals or a way to increase the cap rates on properties. If you have a property that is worth $200,000 based on a 10% cap rate, that means it is generating $20,000 a year in income. If you can create a more stable lease or rent to more attractive tenants that could lower the cap rate, that makes the property more valuable. If the property was generating $20,000 a year income and had an 8 percent cap rate it would be worth $250,000.

An investor could also find a better use for a commercial building, which may increase the income or lower the cap rate. A warehouse may not have a good cap rate in a certain market, because there are vacant warehouses all over. That warehouse could be turned into self-storage, which is in short supply increasing the income and lowering the cap rate. Increasing the value of a commercial property could be as simple as taking a vacant building and finding a good tenant on a long-term lease.