What Is the Riskiest Asset Class in Commercial Property Sales?

Most people jump at the word “risk” and think it’s all bad news, but not every risk is a deal-breaker. In commercial property sales, risk just means how likely you are to lose money—or how wild the price swings get. Some investors love the rollercoaster; others want something closer to bumper cars.

So, where do things get truly dicey? Not all property classes are built the same. Some, like prime offices in downtown hotspots, are safer bets, while others can wobble fast if the market sneezes. You’ve probably heard stories about shopping malls turning into ghost towns or coworking spaces shutting down overnight. There’s always a next big thing—and a next big flop.

If you’re thinking about putting your money on the table, knowing the riskiest asset classes can save your hide. Let’s sort out what makes certain commercial properties rollercoaster material and how you spot those risk signals before it’s too late.

• Defining Risk in Commercial Property
• The Usual Suspects: Asset Classes Compared
• Why Some Asset Classes Turn Risky Fast
• Tips for Playing Defense in Risky Markets

Defining Risk in Commercial Property

When someone says a commercial property deal is “risky,” they’re not just guessing. Risk means the chance of losing part—or all—of your money. In commercial property, risk comes from several angles: market swings, tenant defaults, rising expenses, dodgy locations, or stuff nobody saw coming (like a global pandemic).

The risk is baked into every deal, but not all deals serve up the same slice. For example, an office building in the heart of a tech hub faces very different challenges than an aging strip mall on the city edge. Vacancy rates, rent growth, how easy it is to find tenants, and even government rules can shake things up fast.

As Daniel McNamara, a well-known property strategist, puts it:

“The faster an asset’s value can swing, the more an investor needs a strong stomach. Commercial property can look stable, but when the market shifts, fortunes change overnight.”

Here’s what drives investment risk in this game:

• Tenant Mix: Reliable tenants (think banks) usually mean lower risk. Trendy businesses or single-use tenants can raise your stress levels fast.
• Lease Length: Short-term leases are riskier. If your tenant can leave any year, you’re basically playing musical chairs.
• Location: Prime spots keep value longer. Off-the-beaten-path properties often get hit hardest in downturns.
• Market Trends: Some sectors (like retail) get slammed by shifting consumer habits, while others (like logistics centers) boom out of nowhere.

Every property sale comes with a risk label, but knowing what’s under the hood lets you steer clear of the lemons. Look at the numbers, watch how tenant trends shift, and don’t get caught up in hype.

The Usual Suspects: Asset Classes Compared

When someone asks what the riskiest commercial property asset class is, I always say: it depends on the moment. But there are usual suspects you see on every investor's radar—offices, retail, industrial (think warehouses), and multifamily apartments. Each one takes a different beating during rough times.

Let's break it down:

• Office Buildings: Two years ago, these were considered steady. But with remote work, vacancy rates have shot up. In 2024, big cities like San Francisco and New York saw office vacancy rates hit nearly 20%. That's way above the historical 8-10% norm.
• Retail Properties: Shopping centers and malls are struggling because online shopping (thanks, Amazon) is crushing brick-and-mortar stores. Remember what happened to Sears and Toys 'R' Us? Still, grocery-anchored strip malls stay strong since you can’t download milk.
• Industrial Real Estate: Warehouses and distribution centers have been gold mines lately. E-commerce growth means more boxes need a home, so these are less risky—at least for now.
• Multifamily Apartments: People always need somewhere to live. Even if the economy dips, apartments don’t empty out the way offices or malls might. Rents might stall, but total collapse is rare.

Here's a quick comparison of vacancy and rent trends—two things that make or break property sales:

If you're hunting for the most risk, all eyes are on retail (especially malls) and offices right now. Markets shift, but these segments have proven to whip around fast and hard when consumer trends change or companies rethink where people work.

Why Some Asset Classes Turn Risky Fast

It’s wild how fast a commercial property can go from hero to zero. Trends, tech shifts, and the economy can flip the script overnight. Remember regional malls? In 2015, they were cash machines. Today, e-commerce giants like Amazon have eaten huge chunks out of their profits. That’s how a seemingly safe asset class turns into a cautionary tale.

Big changes in tenant demand make some classes riskier than others. For example, a risky asset class like coworking spaces boomed during the flexible work craze. But when the pandemic hit, many of these spaces emptied out almost instantly. Overreliance on a single industry (think hotels in tourist-heavy areas or offices in oil towns) can turn a solid investment into a headache if that industry tanks.

Here’s a quick look at how quickly things can go sideways across different types of property sales:

Source: CBRE Market Reports, Q1 2024

Lease lengths matter too. Industrial sites with long-term leases tend to be more stable, while “hot” markets with month-to-month contracts (like serviced offices or pop-up retail) can fall apart when business slows down. One shift in government policy or a sudden rise in interest rates and, boom, you’re left holding the bag.

"Commercial real estate can pivot on a dime. If you want to survive, you need to track tenant needs and shifting demographics like a hawk." — Marcus & Millichap CEO Hessam Nadji

In the end, knowing why certain asset classes get risky fast helps you spot trouble early and maybe even dodge the worst of it. Watch for market shifts, study tenant trends, and keep an eye on the wider economy before sealing any property sales deal.

Tips for Playing Defense in Risky Markets

When you're wading into a risky asset class in commercial property, you can't just cross your fingers and hope it turns out okay. Playing defense means getting proactive—just being aware isn’t enough. Here are a few ways to protect your investment if you're thinking about entering a volatile commercial property sale.

• Do Extra Homework: Dig deep into the area and asset class. Look for vacancy rates, recent sale prices, and the track record of big tenants. A 2024 CBRE report showed that retail strip centers had a 12% nationwide vacancy last year, while industrial properties were under 5%. Know where you stand before signing anything.
• Spread the Risk: Don't throw all your money into one fragile basket. If you're into mall properties, maybe add some flex industrial or medical office assets. Different asset classes react to market shocks in different ways, so a little mix cuts the risk.
• Negotiate Hard on Lease Terms: Ask for longer commitments from tenants and build in rent escalations. The more stable your lease income, the less you’ll sweat if the market gets bumpy.
• Stay Liquid When You Can: In risky markets, you want cash on hand. This means not over-leveraging your deals. In 2023, more than 23% of distressed commercial properties were forced into quick sales because the owners had maxed out on loans and couldn’t weather short-term storms.
• Watch the Neighborhood’s Pulse: Neighborhoods can turn fast. Set up alerts for big employer moves, zoning changes, and new construction. One supermarket chain shuttering can ripple down to every store in a strip center.

If you like numbers, check this out:

Keeping an eye on these stats can tip you off early when an asset class is turning risky. Smart investors always have an exit plan—and obsessively check their data before making a move.