What Does ‘Location, Location, Location’ Mean in Commercial Real Estate

People often say that there are three things that determine the desirability of a property: location, location and location. For residential properties, a good location means a quiet area (away from busy streets), a good school district, high-income areas, etc. Is it the same for commercial properties? Location is also an important factor in commercial real estate investing. For commercial properties, location is key, as a lousy business will thrive in a good location. When a commercial property is in a good location, it will attract tenants to the property and keep them there. It will also attract customers from your tenants to the property. As a result, you as the property owner may demand a higher rent and price for the property. So how do you as an investor determine if the property you would like to invest in is in a good location? Look at the property and see if the property has these characteristics:

1. Close to major roads and highways: This provides easy access to the property so tenant clients can quickly and conveniently drive to the property. When the property is on a major artery, it is easy for clients to find the location and get an idea of ​​the distance and how long it would take them to get there.

two. On a busy street with a high volume of traffic: Business listings often mention traffic volume in terms of Cars Per Day (CPD). More traffic means more exposure of your tenants’ businesses to more potential customers. This is free advertising for your followers. The traffic could also be foot traffic. For example, the retail stores on Pier 39 in San Francisco benefit from the high volume of foot traffic from tourists.

3. Near Pinned Tenants: Large retail stores like Wal-Mart Supercenter, Target, Costco, Home Depot instantly attract many customers to their stores. So if your commercial property is close to an anchored tenant, you will benefit from the high volume of traffic.

Four. good visibility: All units on the property must be visible from and near the main road with no buildings in front blocking your view. So that clients can easily find tenants in the property.

5. We have a major intersection.: This will give the property more visibility as it has more frontage on both streets. If the property is located on a marked corner, that’s even better. When the cars stop at the traffic light, the people in the cars will notice the stores on your property. The traffic light is also an indication that the intersection has more traffic volume.

6. Close to local services: The stadium, university, large shopping malls and hospitals will bring more traffic to the mall. Doctors always like the medical building near the local hospital as it is convenient for them to go back and forth between the hospital and their office.

7. Ease of entry and exit: The property must be easy to enter and exit. Ideally, it should have multiple ingress and egress accesses if possible. If it is difficult to turn left, some shoppers are less likely to go to malls. And therefore it makes the property less desirable for tenants. Starbucks likes to be on the way to work and not on the way home. People like to buy coffee on the way to work without having to turn left so they can get back to their commute quickly.

8. Lots of parking spaces: People don’t like to go to a place where they have trouble finding parking. Retail centers must have at least 4 parking spaces for every 1,000 square feet of rentable space. It is more desirable to have 6 or more parking spaces per 1,000 square feet. Fast food restaurants tend to have 10 to 15 parking spaces per 1,000 square feet. The width of the parking space is also important. Who wants a knock on the door after a shopping trip or trouble parking their SUV?

9. good sign: Signage is an important part of a commercial property. Customers often search for the company name rather than the mailing address. A large, tall monument sign in front of the property with the names of the businesses on the property is always desirable.

10 High barriers to entry.: You want a property in an area with high start-up costs and various obstacles to avoid competition. This is often an area with:

• Strict zoning or with a master plan to limit the supply of commercial properties. Rents are more likely to go up in this area.
• There is little vacant building land left so your tenants can’t go anywhere.
• Strict regulations for permits and licenses. For example, it is much more difficult to obtain a permit to open a medical office building in states that require a certificate of need.

eleven Able to attract and retain tenants: Your tenants will search for a building and neighborhood that are attractive to them and their customers to determine whether to sign or renew leases. Therefore, the quality of the construction, the condition of the property, the landscaping, the appearance of the building and the surrounding areas are all important factors in keeping the property 100% leased.

12 Strong demographics: You want to invest in an area where the population has increased. Check the demographics in the property brochure to see

• Population growth in the last 5-15 years. In a growing area, tenants will need commercial space to serve customers. This in turn increases the demand for commercial property.
• Population size. You want to think twice about investing in a small city with fewer than 30,000 residents within a 3-mile radius. In a small town, there is always plenty of vacant land for tenants to easily move into a new building nearby. This is a property that is easy to buy and difficult to sell later when it is older and less attractive. In addition, it is also very difficult to obtain financing for this property.
• Area median/average income is within a 1-5 mile radius of the property. You want a median household income above $55,000, as this is the national average. However, $55,000 in the San Francisco area is not the same as $55,000 in Houston, since the cost of living index in San Francisco is 170 and Houston is 95. In general, you want to avoid property in a low-income area, as it is often a crime area and tends to have more graffiti and vandalism. The costs of removing graffiti will increase the property’s maintenance costs and burden your tenants. On the other hand, if you want to invest in a fast food restaurant, you don’t want to buy property in an affluent area, eg $120,000/year AHI. High-income diners prefer to eat in sit-down restaurants. And so Burger Kings and McDonald’s struggle to make a profit in high-income areas due to a lack of customers.