Top Five Issues Facing Commercial Real Estate Investors

Posted on 23 July, 2012 by Jodee Redmond

Commercial real estate investors are no strangers to the idea of taking a risk. When contemplating this type of venture, they need to consider a number of issues which can have an impact on the value of their investment.

 

What are the top five issues commercial real estate investors need to consider over the next couple of decades to make decisions which will give them the best return on their money?

1.  Aging Population

As the first Baby Boomers reach retirement age, the influence of this demographic group (estimated at 76.4 million in the United States alone) cannot be overemphasised. Their needs and preferences will have a bearing on the location, layout and size of all types of commercial properties, including offices, retail spaces, and healthcare facilities.

2.  Stricter Bank Lending Rules

Over the next three-five years, there are billions of dollars in commercial real estate loans which will need to be refinanced, but the number of lenders who can provide the needed capital is decreasing. As Governments in Europe and the United States put stricter regulations for borrowers in place, getting the capital needed to finance a commercial real estate venture is becoming more difficult.

3.  Less Demand for Office Space

Telecommuting is becoming a more common work arrangement, with a number of employees working off site at least part of the time. The need for workspace is shrinking as a result, and major commercial tenants are allotting less square footage per employee than in the past.

Some major companies have made significant cuts in square footage, moving from 200 square feet per employee to 50-60 square feet for each worker. Less demand for office space means fewer new construction projects will be started, and investors may need to adjust their expectations about the return they will receive.

4.  Changes in Demand for Retail Space

With online shopping in the United States predicted to top $327 million in 2016 according to InternetRetailer.com, the need for brick and mortar stores is changing. There will always be some customers who want or need to have a more personal experience, but many retailers are changing their physical premises in response to lower foot traffic numbers.

5.  Sustainability in the Workplace

Green is not only the colour of money; it represents a movement which affects many aspects of running a business today. Keeping energy costs and water consumption rates down is important to commercial tenants, and prospective investors will want to consider whether the buildings they are looking at buying will provide a healthy work environment by using materials which are not only environmentally friendly, but less likely to cause allergic reactions in occupants.




2 Responses to “Top Five Issues Facing Commercial Real Estate Investors”

  1. David Evans,London says:

    This article raises some interesting issues for investors to consider over the coming years. We are experiencing structural changes to the way business is conducted and the way consumers interact with retailers which will inevitably be reflected in the commercial property market. Once again, very interesting.

    • MOVEHUT says:

      Glad you found it interesting David. You have raised some good points that may require a further article in the future.

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