Common knowledge says real estate is a good investment with strong returns and low risk. Many companies use this rationale to justify owning vs. leasing. But is real estate truly a good investment of a company’s capital?
A closer look at the historic returns on commercial real estate tells a different story. Data from the National Council of Real Estate Investment Fiduciaries shows the average annual appreciation of commercial real estate has been 2.3% since data collection began in 1978. Even appreciation returns from the more stable period of 1994 to 2006 were only 3.2%.
The average annual return on equity for the companies in the Dow Jones Index over the past 10 years is greater than 21%. Even if you factor in the rent you save from owning real estate, the returns from investing in your business should significantly outpace real estate returns overtime.
Is your company settling for lower returns?
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