January 13, 2023
What Factors Affect the Value of Commercial Real Estate Properties?
If you are diversifying your investment portfolio to include real estate, you may be considering which properties will maximize the value of your investment. The commercial real estate market is ever-evolving and fluctuates in response to changes in its environment. Today we will discuss significant factors that can influence property value.
When evaluating which properties to invest in, it can be useful to look at surrounding properties in the area. Properties in the same area with similar amenities are comparable and expected to be of similar value. Proximity to public transportation, parking lots, highways and general walkability also affect property value. Property with more accessibility to these systems are likely to generate a smooth flow of incoming and outgoing traffic, rising above a competitive property that is isolated or tricky to navigate.
Interior and Exterior Maintenance
Upkeep of internal and external elements is one of the most notable components contributing to a property’s overall value in the market. Properties receiving regular maintenance and attractive aesthetics tend to outperform similar properties that are older and typically cheaper to invest in.
For example, a multi-family property with lush curb appeal is likely to garner more prospective tenants than one with no lawncare or property sign. Similarly, the internal building systems, such as the HVAC, piping, and electrical wiring must be in good condition as the need for repairs will cause a decrease in the property’s value.
Commercial real estate that has the potential for renovation and added value will be worth more to investors than a property without it. The highest-and-best-use of a property will change with time and having the room to redevelop is going to maximize the potential for profit. Additionally, a property will increase in value if it can be repurposed. An example of this is seen in our adaptive reuse development, Chronicle Mill in Belmont, North Carolina.
It goes without saying that the economy will affect the value of commercial properties. GDP, unemployment rates, and job growth all have an effect on real estate market value. While the economy is not something investors or property owners can change, it is important to keep in mind that it influences spending power and affordability. That said, the rise and fall of regional and national economies should not be a deterrent in real estate investment as a whole.
Consider Investing in a REIT
It can be quite difficult to decipher which commercial real estate properties to invest during the peaks and valleys of the market. This is why we recommend investing in REITs rather than individual properties. A REIT is a total return investment and is perfect for any investor looking to diversify their portfolio. Check out this blog post to learn more about how REITs can lead you to a successful investment portfolio!