Factors to Consider When Choosing Commercial Real Estate

Commercial real estate can include a broad range of properties, from retail shops to industrial complexes. It can also include office buildings and large apartment complexes.

If you are considering investing in commercial property, it is important to examine several factors to see if the investment is right for you. This article will cover the following topics:

Location

The old real estate cliche “location, location, location” isn’t just a catchphrase; it’s very important. The right commercial real estate location can make all the difference in how successful a business is. It’s critical for retailers to have access to high foot traffic, office tenants need easy access to clients and suppliers, and warehouses need convenient transportation routes.

The right location should also be able to support your growth plans in the future. It’s helpful to talk to a commercial real estate agent about the area’s current and projected future economy to see how a location will benefit you in the long run.

The site selection process can include factors like zoning and environmental safety, as well as whether the property will accommodate your business needs such as space for inventory or adequate parking. It’s also important to consider the local culture and if it is business-friendly, as this can affect both your employees and customers.

Space

In addition to size and configuration, space can be a critical factor in determining a commercial property’s ability to serve its intended purpose. For example, some spaces may be too small for a business’s current needs, while others may be difficult or costly to repurpose when a tenant leaves.

Other considerations include whether a space is in a high-traffic area, and if there are any competitors or complementary businesses nearby. Competitors sell similar products or services, while complementary businesses attract the same audience and can help drive customers to each other’s locations.

Local economic trends can also impact a space’s viability, such as tourism and unemployment rates. A low unemployment rate signals a strong job market and likely increased demand for retail or office spaces. In contrast, a rising unemployment rate may indicate weaker job growth and lower demand for commercial spaces. A good real estate agent will be familiar with these trends and can provide insights into what type of commercial space is in the best demand.

Lease Term

Commercial leases are typically negotiated for a set period of time. A longer lease term provides security to the landlord and may result in lower rental rates. On the other hand, a smaller lease term may provide flexibility to the tenant, which is particularly important for new businesses that may not be able to predict their future needs.

A landlord can choose to advertise available space by listing the property with real estate brokers, referred to as “listing brokers.” These brokers represent the landlord and are often paid 3 to 6 percent of the annual rent to find a renter. A tenant broker, on the other hand, works solely for tenants and typically receives only a small fraction of the listing broker’s commission.

Keeping track of all the different dates that impact your lease portfolio is essential to accurate lease accounting. This includes determining the lease term, which is the initial term of a contract before considering any options or renewals. This assessment is based on contract, asset, entity and market-based factors.

Financing

Commercial real estate (CRE) is a broad term that includes everything from industrial complexes to office buildings and retail shops. Each asset type offers different returns, risks and potential growth. Some types of CRE do better than others, depending on market conditions and supply and demand.

Investors should understand how to evaluate each property’s financial numbers before they buy. This involves calculating Net Operating Income, Cap Rates, and the like. Obtaining a rental history, credit files and leases can help investors make more informed decisions about the properties they’re considering.

For business owners who are buying commercial real estate to host their own business, it’s important to consider the overall cash flow of the property. They need to be able to pay the mortgage and have a little left over for profit. Also, they may want to decide if they want the building to be a gross lease or net lease. If the building is a gross lease they can convert it to a net lease later.