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What Affects the Value of Commercial Real Estate Properties?

The contents of this article do not constitute financial or investment advice. To find a solution tailored to your needs, reach out to our team of commercial real estate professionals.  

The commercial real estate market is continually evolving and reacting to changes that occur over time. If the goal is to purchase commercial property, you need to be aware of all factors that could cause an increase or fall in real estate values. The following are the most significant factors to consider before your next purchase to ensure you stay ahead of any value fluctuations. 

1.     Location

The location of a property is crucial and has a large impact on the value of commercial real estate properties. Location comes with varying elements to consider, the first of which is surrounding properties. If, for instance, your top pick rests in an area with other similar properties in terms of amenities and square footage, you are likely to get almost uniform increases or decreases in property values.

Take, for instance, the neighborhoods in the Downtown, Virden, and Belhaven areas of Jackson. Properties in these areas are often used for rental purposes. Occasionally, you’ll find that sizing in terms of square footage is similar. Their real estate values appreciate and fall based on the location, with the current rent being between $1,043 and $1,141 a month.

Commercial Real Estate and Accessibility

Transportation is another aspect to consider. This mainly involves access to highways and freeways, transit systems, and parking. Additionally, consider the number of vehicles that pass by daily. More traffic means more exposure for a commercial property and will increase real estate prices.

Vehicle ingress and egress is the last aspect affecting the location of real estate properties. Simply put, this refers to the ease of entry and exit. If a property has direct and easy access systems, it will likely come at a higher price than one which is difficult to access. The ability of vehicles to make turns also comes in handy. This results in more value for a property with easy maneuverability.

2.     Supply and Demand

Real estate is also subject to the laws of supply and demand, which state that if supply exceeds demand, commercial property prices will fall. In this situation, a buyer’s market arises where buyers have the upper hand. The vice versa refers to a seller’s market, when demand exceeds supply and property value increases.

3.     Demographics

Demographics comprise aspects such as age, race, gender, population migration, and education levels. By relying on these attributes, the real estate market determines what properties to avail to buyers. Where regions experience an increase of young and educated people, properties are likely to be high-end. On the other hand, if the larger part of the population is aging, the types of homes in such an area will include retirement homes, resulting in low-priced commercial real estate properties. 

If you consider an area like Jackson, the median age of its population is 32.4 years. Furthermore, 85.6% of the residents here have a high school degree. With such factors, the value for commercial real estate properties in the area is bound to be higher.

4.     Maintenance

Property impressions are short-lived but play a significant role in determining commercial real estate property value. Attractive aesthetic touches such as finishes and landscaping details mean an increase in property pricing and value. It follows that poor exteriors result in low real estate property valuation.

The property’s interior condition also contributes to its value and indicates a lot about its maintenance. If, for instance, you are eyeing a newly constructed building, the chances are that it will need little to no repairs. This means the value of such a real estate property will be high. However, the same cannot be said of older buildings. Degradation of amenities such as the HVAC, piping, electrical wiring, and the foundation means more repairs for buyers and investors. Due to these factors, such a property features low desirability, leading to reduced property prices. 

5.     Renovation and Value Addition

Additionally, the potential to either renovate or add value is another factor with a major influence on the valuation of a commercial property. A property with such potential is a better option for investors and buyers, as it can fetch more money than its initial selling price. It will, therefore, come at a higher rate than a property where you can’t make any improvements.

6.     The Functionality of the Commercial Real Estate Property

The functionality of a commercial property mainly considers its size and the facilities provided. If more buyers are looking for a space with two bedrooms, a swimming pool and gym facilities, properties with these amenities will likely experience a rise in value. Those lacking these functionalities will, on the other hand, experience a drop in demand and subsequently, a dip in value.

7.     Commercial Real Estate Redevelopment Potential

With redevelopment potential, investors get the benefit of transforming a property into their desired space. Warehouse spaces can, for instance, be converted to business centers by investors and buyers looking to settle can modify the same piece of property into a residential space. Such flexibility results in an increase in real estate value since the possibilities are endless for buyers.

8.     The Economy

Economic performance in real estate also relies on aspects such as GDP, unemployment rates, household savings, and job growth. When these elements rise or fall, the regional, national, and international economy is also affected, contributing to a ripple effect in the real estate sector. If, for instance, there is an increase in jobs, people have more money to spend, which increases the value of properties. For example, Jackson’s economy has seen a growing GDP of nearly $25.5 billion, making it a hotspot for business. With this comes an increase in spending power. Increases in commercial real estate value also result, seeing as more people can afford property.

Consider Commercial Real Estate

Commercial real estate properties are an investment for people looking to either rent out or settle down. However, the factors listed above necessitate due diligence and patience before your purchase. While one factor may play a large role in your desired property’s value, it is wise to look at other elements to ensure you get a fair price. If you are looking to consult on investing in commercial real estate, get in touch with Speed Commercial Real Estate today.

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