The commercial real estate sector is a major investment subset of the larger real estate industry. More investors are targeting moving into commercial real estate properties (e.g. business parks and resorts), owing to the lucrative benefits and returns. Of late, however, the industry has been discovered to be largely affected by five major issues. Although these issues do not really pose a huge risk to investment, they play a huge role in shaping how investors go about due diligence before, during, and after investment.
Commercial properties are largely situated within urban areas, which are controlled by municipal regulations. Environmental concerns have been voiced in the past on how these commercial properties affect the welfare of the surrounding communities. The situation of mixed-use properties, which places residential properties close to commercial properties, does pose a huge issue on resource contamination.
Commercial properties are largely prone to major disasters, including fire. The risk of fire razing down commercial properties that are situated in urban areas in close proximity to other properties is a major point of concern. Although today’s buildings are constructed in a way to facilitate fire safety, the internal operations undertaken within the properties do exponentially increase the risk of disaster. For example, properties used to manufacture lithium-ion batteries are highly prone to fire.
Mother nature has never been forgiving to buildings. The construction of commercial properties does pose a huge challenge to structural engineers as they contemplate how they can make these buildings as strong and durable as possible. Hurricanes and floods are two environmental disasters that have a huge impact on commercial real estate properties.
Demand for Properties
For commercial real estate investors to actualize profits in their investments, they must assess the existence of demand for the same. In the recent past, there has been a gradual shift in the dynamics of demand for commercial real estate properties. Businesses now demand buildings that are strategically situated, which come fully equipped with the logistical frameworks to support operations. Commercial properties constructed years ago, therefore, do experience little or no demand.
Demand for commercial real estate properties is largely dependent on the existence of a favorable national, regional, and even global political climate. Political analysis has revealed that businesses take a huge hit whenever a country goes into elections. The political uncertainties exhibited in this case destabilize businesses, which in turn has a huge effect on the demand from commercial properties.