Commercial Real Estate: The Driving Forces

Wealth is simply defined as the “abundance of valuable possessions.” Value may come in many forms, but for most, real estate signifies a sizable fraction of many people’s wealth in the United States.

Purchasing real estate may be thought of as one of the most prevalent purchases someone will make throughout their lifetime with almost one-third of his or her net worth tied into real estate.

As the scale of the real estate market fluctuates, making sales attractive or deplete for a certain period, the driving forces behind fluctuation often stay the same.

The Economy Shift

It is no secret that a strong shift in the economy affects the overall health of the economy and more importantly the value of real estate. Reference guides such as employment data, manufacturing activity, price of goods and GDP provide an indication as to where strength and weakness lies within the economy.

It is important to be cognizant of the real estate property you own in relation to the economic cycle. This will help commercial real estate owners to further recognize and fully comprehend the varying affects that may result from a shift in economic stability.

Demographics

An area often overlooked, demographical statistics play a significant factor in the pricing and demand of real estate properties. Defined as the configuration of a population including age, race, gender, income, migration and population growth patterns, these patterns can impact trends over several years.

Consider topics such as how demographics may affect vacation homes or the demand for larger homes for the empty nesting parents with lesser incomes. In relation to commercial real estate, these questions may help potential homeowners to narrow down a suitable location and develop a long-term investment that will beat the future trend.

Policies and Subsidies of the Government

Government incentives can play an important factor in recognizing false trends of the real estate market.  A temporary boost of demand for real estate can be made through tax credits, deductions and subsidies from the government. Legislation may lead to a sizable increase in real estate purchasing, however hidden incentives, such as taxes, may lead many to believe that the demand for housing is on a rise supported upon other factors by the government.

As a potential commercial real estate buyer, it is important to be aware of government incentives and the changes in supply and demand to identify the underlying reasons of why the homeowners market is on the rise.

Interest Rates           

 Interest rate alterations may make or break a potential homeowner’s sole ability to purchase a home. It is crucial to explore all options when researching interest rates as many banks do not have a sufficient background in in commercial loans, while residential loans seem to be more popular. Additionally, it is important to recognize that in most cases, commercial real estate interest rates tend to be fairly higher than those of residential. This is due to several factors some which include; the bank not being able to gauge the creditworthiness of a company as opposed to a potential homeowner and also the idea that most commercial mortgages are paid out for by the company as opposed to an individual.

When deciding to move forward and finally purchase a sizable amount of real estate, consider these factors and explore all options to make the most of your investment. Many times the driving forces for fluctuation and decline in the market are the same, therefore with a little background research, potential commercial real estate buyers can understand the trends in the market and optimize their options.