Location is often seen as the most important factor for the value of real estate. Especially with residential real estate. However, with commercial property location is not the only factor of value. It is important, but their are other factors resulting in value and market price.
Investing locally is best for property investment purchases. The other option is if you are an experienced investor, investing in triple net properties, which have leases that require the tenants to pay for all building expenses, then not local can also be considered for investment. However, this takes experience and research out of your area, while analyzing the lease contract to make sure the lease agreement requires the tenant to pay for all property expenses. Otherwise you will need to do a lot of traveling to your property for management. Either that or you will need to hire a local property manager in the area of your property investment.
Local property analysis is less difficult because it allows you to drive by car to the properties for building and location analysis before deciding on the purchase. And it lowers your costs because you do not have to travel long distances, perhaps by airplane with hotel lodging also needed. Also it helps that with local properties you already know something about the area. You can more simply research locally with types of businesses in the areas and look up the price that the property was previously purchased for along with the date of the purchase.
This is the statistical data of a population, such as how many people live in an area which is the population count for a city or county, income of residents, age, education, etc. Examples of this are population per square mile, number of families, income of the residents, and median age. The value of real estate can be favorable for new property investment in cities or areas where there is growth. When an area shows steady growth there will be more demand for goods and services with businesses needed to serve a larger population. This will increase the need of residential and commercial property while opening up increased property investment opportunities. Here are the basic elements of demographics.
Good Jobs Mixed With Levels of Income
Good and secure jobs along with income that supports the costs of the residents in areas will stabilize the population and could also result in an increase in population. With a stable and perhaps increasing population this means people will need housing and business services. This will at least stabilize the business interests and the needed properties. Statistical information on this is from the U.S. Bureau of Labor Statistics. https://www/bls/gov/ The BLS tracks job statistics on a national, state and city level.
Diversity or Variety of Businesses
With a diverse number of businesses with a balance of business types, this will protect against economic downturns. For example, if one type of business changes from doing well to not doing well and this is the only major type of business in a certain area then you will see an economic downturn for this area or city. This will damage the commercial real estate market since this will result in lower income for the residents with less money received and available for spending at local businesses. This will also result in less affordable housing. With this unless increased debt with lower interest rates charged is allowed this could result in foreclosures and the lowering of real estate prices. As examples, if a city is mostly tied to a particular industry, for example Detroit in the automotive industry or Seattle with aircraft manufacturing. Then if there are less sales in these industries the economics for these cities will go down in relationship to the decrease in sales.
Types of Business By Industry
Different industries have different growth rates. For example, farming has been slow growing. With any increase in value for real estate that is primarily in farm areas, this increase will normally be slow. Also farming requires more land per product value output. With this land used only for farming, this land cannot be purchased in high priced land areas. In contrasts, with the technology industry, computers and software, less land is needed for higher valued production. Also new improved technology can rise more in this industry with even higher valued and additional goods and services. This means that areas where they locate will cause property values to rise more and faster. Therefore investing in high-tech areas have greater potential for growth. However, all properties have a risk if over-priced according to actual income production and for sale market values.
The outsourcing of jobs from local areas to foreign countries can hurt local economies. We have seen this with large yearly trade deficits which for the United States has been over 350 billion dollars a year since the year 2000. Economic stimulation primarily by increased debt has a high risk. If jobs go overseas followed by businesses and plants closing locally then this will decrease productive employment. Real wealth in a society is created through the production of goods and services, the land, buildings and knowledge that are used to produce goods and services. Money, stocks, and bonds keep track of wealth, but they do not create wealth for an entire society. Outsourcing to foreign countries can cause a downturn in a local economy and create a poor and risky investment environment.
Analysis is needed to make sure jobs with income to the majority of people is not outsourced to foreign nations. A good indicator of a stable economy is companies’ paying stable or increasing wages to their employees, while still making income as a for profit company. Check for levels of unemployment as well and make sure they are not high and increasing in an area of real estate investment. Unless of course, a low enough real estate price is negotiated. Additionally, you can seek out areas that include businesses and governmental agencies that are traditionally resistant to economic downturns, for example, education with schools and colleges, government agencies, for example city hall and medical services.
One of the first things of analysis for parents with children of school age or soon to be school age, when looking for new areas and neighborhoods to move to are favorable and good schools in the area. Good schools with a high rating are important to parents for their beloved children. Good school areas will increase the desirability of neighborhoods and areas and with it increase the demand for homes in the area thereby increasing the residential home prices. With higher residential property pricing you can next expect an increase in commercial property prices in the same or nearby areas. Either that or the hope for some that some commercial property near residential areas can be rezoned to residential for needed homes in the area.
Along with the growth of the population with children and then their need for education, parents and their school age children also require a multitude of services, such as day-care centers, grocery and clothing stores and sometimes even restaurants. These needed businesses will then drive growth in commercial properties as a needed investment also. With this could also come an increase in commercial property prices following that of an increase in residential property prices.
Access and Parking
Access to its location by roads and paths is needed for any property. This is especially true for commercial property that requires drive to and walk in customers, often new ones. Ease of access, especially for retail business properties will mean a higher value than a property with limited access. Also important is adequate parking for cars and trucks once you reach the business location. If the property has a parking lot, the added land square footage alone should increase the value of the property. Plus simple and easy to see parking for customers should increase the amount of customers. Also public road side parking that does not require parking fees means less money spent by the potential customers with more money available to spend in the commercial store. This would be especially true for lower price product types like fast food restaurants and grocery stores.
Another factor is with new commercial property development. Public road access is needed for properties. With new commercial property developments like shopping centers and strip malls that has its own parking lot, you will need a vehicle entrance and exit and this may need to go through a current public walking path. Applying for a permit with a local government agency will be required.
For retail businesses a property in an area with a high traffic count can bring more potential customers to the business. Either that or a retail property near a major highway with easy access to the address of the property from connecting roads. Then a large and high sign can be added to the property advertising the businesses on the property. Information on traffic counts is helpful and can be provided by state or city departments of transportation. Historical information for traffic counts can also be helpful to determine if traffic is increasing or decreasing. A long term decline in traffic may indicate traffic is being altered by newer highways or roads elsewhere. This may indicate a potential decline in commercial property values where types of businesses benefit from high and stable traffic. In contrast, an increase in traffic counts can increase the value of commercial property in those higher traffic areas.
Properties are zoned for specific uses: residential, commercial, industrial, agricultural, and office. To show this cities and counties have specific letter and number coding. For example, letters are often first used to represent zoning types (R for residential, C for commercial, etc.) followed by numbers to represent the level of usage or amount of acreage or square footage required for individual properties to qualify. Zoning ordinances are to be based on the needs of usage for properties in the various areas. For example, all cities need residential for people to live in so we have residential property usage areas. Other areas are for commercial, office and even industrial for the production of goods. The specifics of required property standards are outlined by local government ordinances and must be followed. Otherwise in order to challenge or change zoning requirements for specific areas, appeals must be brought before a public administrative agency involved in the regulation of property usage. Since these agencies have legal experience to back up their zoning ordinances, legal knowledge often through attorneys needs to be used to have a chance to alter this for new property usages.
Before the purchase of property, especially land, there needs to be close attention to zoning regulations and ordinances. Otherwise there is a risk of zoning regulations not following the needs of and goals of new property owners. As an example, a new property owner wants to build a strip mall that will include a restaurant. Restaurants need enough parking for customers. The question is do local ordinances allow you to include enough parking spaces? If the answer is no, the property owner has to seek permission or change plans. Problems can be avoided by examining zoning before the purchase of property and getting site plan approval. If you do not get approval, an appeal needs to be made to the local governing agency.