IMPACT OF LOCATION ON COMMERCIAL REAL ESTATE

Planning your CRE location Strategy

The commercial real estate (CRE) sector that comprises of office space, retail, industrial, and special-purpose buildings is driven by the fact that how you manage your data to derive understanding and this becomes your location strategy. The Commercial investment properties can be segregated in Primary, Secondary and Tertiary commercial properties- this describes the value or quality of different classes of commercial investment property.

. Primary location properties are the ones that are centrally located on a popular high street or the main part of a leading shopping centre.
. Secondary properties would be ones within walking distance of the high-end street.
. Tertiary properties are mainly located on the outskirts of major cities.
. Even the markets, such as local shopping districts or neighbourhood markets,  could also be segmented as primary, secondary or tertiary depending on how active the market is.

Importance of location in CRE purchase:

 There are many considerations related to location that need to be taken into account when evaluating a potential commercial real estate investment. Issues with location are so important because they tend to be major issues: property access, zoning, environmental safety, etc.

These factors are not only important for the operating success of the building—but they also come into play when an owner has to liquidate the investment.  Missing a major issue during the original transaction underwriting can seriously impact the exit of the investment.

Location always plays into the fundamental valuation and expected return on the investment. NCR being the major urban real estate market of the country remain extremely hot, new investors have the choice to pay a premium for a prime location or move out of major markets to get more desirable returns. Due diligence is of the utmost importance when evaluating a potential area. Investors who can accurately predict which areas are coming into or out of trend stand to make significant returns. 

How location categorization can be done from the office standpoint:

While looking for offices it is imperative to have a good location strategy as it allows you to obtain the optimal location aligned to your organization’s needs and objectives, such as whether the area is good for the type of people they need to work within the offices or whether the type of skilled workers is available in the area.

No two companies or industries are the same — what works for others may not necessarily work for you. However, it’s useful to look at tech firms as a guide in moving ahead in the right direction. Ultimately, the most important step is putting together the right strategy that aligns to your organization’s needs and objectives.

Location Premiums:

There are location-specific factors that can make an office location Primary. Being close to metro stations, having a good road system, and having basic things such as good data/communication services can make the location into a primary location. The quality of the office; whether it has the latest specifications for offices is also a major factor in whether or not the location is a primary office location.

Secondary and tertiary office markets tend to be in an older style office which some companies might not use. The secondary market aims toward smaller companies or companies which already have a headquarters elsewhere. Both primary and secondary market tend to have specific office-built buildings, whereas the tertiary market tends not only to be in a less desirable area but also to be in a converted building.

What makes sense for investors:

The primary office properties offer a safe investment environment as they lure high-heeled foreign and domestic investors. As interest, competition, and demand in primary markets grow, the costs become greater and investors are likely to aim for other markets. Primary office markets have average sale prices which are twice as much the secondary or tertiary. Secondary and tertiary markets have lower competition/sale prices, and this is what can make them a good choice for investors. Higher returns can also be a huge plus when considering these markets.