Commercial Real Estate Characteristics
Every parcel of commercial real estate whether it is office or warehouse space is unique in its own way, where it is located, the type of property it is, the demand of the property, zoning of the property , restrictions on it etc. All real property has some common characteristics which include fixity, longevity, permanence, risk and market segment. In this blog we will go through each of these and define what they mean
Fixity- commercial real estate is in a fixed location which affects it marketability, due to this commercial real estate values are subject to political and economic activities within the area it is located.
Longevity- commercial real estate or real estate for that matter is considered to be a longer term investment because of the durability of the improvements and the land being of permanence. The quality of the longevity will allow an appraiser to appraise the commercial real estate property with some degree of accuracy using an income approach
Permanence- which we have mentioned earlier. This forms the basis of long term mortgage loans and debt amortization periods. Typical with commercial real estate, financing requires large sums of money with complex financial transactions. These financial transactions require lawyers, lenders, brokers, property managers and other specialists.
Risk- commercial real estate ranks as a higher risk investment venture. The reason for this is that markets are truly not predictable long term. As compared to stocks and bonds there is no readily identifiable market for commercial real estate. Demand for commercial real estate reacts to the current economic environment in which the properties are located.
Market Segmentation- typically there are not alot of formal feasibility and marketing studies for commercial real estate. However an investor who seeks qualified help from a specialist can benefit from proactive measures to mitigate the risks involved in investing. Government activity will affect commercial real estate directly or indirectly. These activities such as control of the money supply and taxes will have an effect. There are also zoning and restriction issues to be concerned with that can raise the price of property or lower it if the commercial property cannot be developed for an intended use.
