©2011 Cengage Learning

Chapter 10 COMMERCIAL AND INDUSTRIAL MARKETS ©2011 Cengage Learning

Business Real Estate Includes both commercial and industrial real property. Typically valued on ability to generate income. ©2011 Cengage Learning

Figure 10.3 Road to Value

The rate of new construction, conversions, and demolitions effect supply of business real estate Important supply characteristics: Changes in supply are slow due to construction time for new product. Government regulations and political considerations can slow or stop developments. The “pipeline effect” must be considered in analyzing future supply. ©2011 Cengage Learning Major Value Influences

Business Property Markets Buyers and sellers often highly knowledgeable about real estate market. Easy access to professionals, including attorneys, accountants, appraisers, etc. Institutional market players Product knowledge ©2011 Cengage Learning

Leases Market users often lease property Leases are typically long term and complex Risk for the landlord is a major consideration when leasing properties. Lease terms include who pays for repairs, utilities, insurance, etc. ©2011 Cengage Learning

Commercial Property aka Income Property Retail Office Lodging Multiuse ©2011 Cengage Learning

Forces local community forces comparative advantage forces customer convenience forces unique forces of a particular type of business ©2011 Cengage Learning

Local Community Forces - trends in population, demography, taste and purchasing power. Comparative Advantage Forces - location, transportation, customer location, governmental controls, combination of stores, etc. Customer Convenience Forces - location to customers, location to similar businesses, etc. Unique Forces of a Particular Type of Business - locational requirements ©2011 Cengage Learning

Commercial Neighborhoods Central Business Districts Linear Strips Local Commercial Clusters Shopping and Big Box Centers ©2011 Cengage Learning

Commercial property location influences Transportation changes where users locate. To save money consumers shift their dollars to warehouse clubs or big box, low cost retail outlets. Huge automobile dealerships locate along freeways creating auto clusters. Convenience food services grow as a result of increased disposable income. The economy shifts from producing goods to services, space requirements change. ©2011 Cengage Learning

Community Economic Changes Community economy effects commercial property Short-term local changes National business cycles Long-term trends ©2011 Cengage Learning

Community population change relates to economic change Demographic Changes Retirements Job Growth Spending Habits Taste ©2011 Cengage Learning

Institutional Factors Transportation/travel patterns Governmental controls including zoning and general plans. Pollution controls Health and safety regulations ©2011 Cengage Learning

Supply characteristics Number of existing buildings Tenant turnover Rent levels Lease renewals Value of properties Pending new construction ©2011 Cengage Learning

Industrial Property Demand tied to swings in the business cycle and mortgage funding. Industrial site selection includes linkage, accessibility & good shipping system. ©2011 Cengage Learning

Industrial Locations No one location is ideal Choice involves compromises Cost of land Skill level of labor Transportation costs Access to raw materials ©2011 Cengage Learning Business seeks locations that reduce its costs and increase profits

Greenhut’s Reasons for Plant Location Demand for the manufacturer’s product (demand sites) Cost Savings (cost plants) Personal Reasons ©2011 Cengage Learning

Other Plant Site Location Alternatives Market-oriented Material-oriented Labor-oriented Footloose ©2011 Cengage Learning

Industrial Trends Industrial parks, with pleasant settings & employee parking lots. Large, one-story buildings instead of multistory. Locations near airports, freeways, and major shipping ports. ©2011 Cengage Learning

When analyzing overall community real estate activities and trends, these institutional factors are important: Are property tax rates reasonable? Are community attitudes receptive to industries of particular types? Is zoning appropriate? Are transportation systems adequate? What are the environmental constraints? Are the educational facilities adequate? Are needed support facilities adequate? ©2011 Cengage Learning

Supply Characteristics Age, condition and vacancy of existing buildings Rate and absorption of new construction Turnover of existing uses Location, volume, & price of vacant property sales ©2011 Cengage Learning

A particular commercial neighborhood can be either stagnant, stable, or improving. A market survey is a careful study of a commercial neighborhood and all of the forces that influence the neighborhood. Transportation, labor, materials, community attitudes, and markets are significant factors that help determine industrial locations. There is a recent trend toward large suburban industrial parks. ©2011 Cengage Learning