The role of location in Commercial Real Estate
Location is one of the most prominent factors to consider when looking at a potential CRE investment. Why is it so important? Because property access, zoning, environmental safety, etc. – all depend upon it. These factors play a major role not only in the operations of the property but also during the liquidation of the said investment. Location always plays into the valuation of and the expected return on property investment.
New investors have the option to pay a premium for the prime markets and get a more desirable return. Investors that can accurately assess which areas are coming into and out of trend stand to make a significant return. Therefore, as a part of the pre-purchase due diligence process, it is critical to evaluate a property’s location on three different levels- market, submarket, and property. A property in a good location could prove to be more successful than if it was located in a less desirable area. But, how to differentiate a good location from a bad one? There isn’t a ”one size fits all” approach because it varies from one investor to another, however, there are a few characteristics that all desirable locations have in common. Let us discuss the factors that an investor is interested in while deciding upon a location for their CRE investment.
1. Growth- A growing population means that the need for real estate is also on a rise. Hence, the population growth statistics should be considered.
2. Job growth- If there is a growth in job opportunities, then the need for accommodation of the new residents may make the location desirable.
3. Transportation- Good markets have readily available transportation options. These include highways, airports, trains, subways, etc.
4. Economic Drivers- Strong real estate markets usually have one or more major economic drivers like a major university, research hub, or a hospital. They tend to anchor a market and attract other businesses and people.
5. Favorable demand and supply- It is necessary to have favorable demand and supply characteristics for the desired property type. For example- it won’t make much sense for an investor to invest in a location with an excess supply of hospitality property if he is considering investing in the same.
6. Amenities- It is always comfortable to have access to plenty of necessities, which usually include shopping centers, entertainment options, medical facilities. The location of the property that has proximity to these amenities is considered ideal.
7. Traffic- Funnily, high traffic is considered good in the real estate industry because traffic here means footfalls. The more it is, the better it is for the business that has leased the space to sustain.
8. Parking- Irrespective of the type of property, parking spaces are necessary for those visiting. According to the type of property being invested in, there should be a desirable number of parking spaces per square foot of the property.
9. Visibility- Visitors should be able to locate the property; hence it is important that it is easy to spot from a distance and has good signage.
10. Entry and Exit- It is important for the visitors or the residents to be able to get in and out of the property. This means that the location should be well-planned and signalized so that it is easy for individuals to come and go.