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The Importance of Location Analysis in Commercial Real Estate Investing

Location analysis is a critical and fundamental step in commercial real estate investment. The returns of an investment can hang on the success of critical location analysis. Therefore, it is essential to understand what specific ways location analysis can help you. Check out these three benefits of location analysis:

Target Market Alignment

Different properties cater to specific target markets. Different types of commercial properties, such as retail, office, industrial, and hospitality, have specific target markets they aim to serve. Through thorough location analysis, investors can ensure a property aligns with their intended market.

Data to consider:

  • Traffic count
  • Income
  • Population density
  • Age Distribution
  • Landscape of commercial properties in the area

Navigating Regulatory Fields

Different locations have different regulatory and legal considerations. Different cities, counties, and states all have varying zoning regulations, building codes, tax incentives, and other legal requirements. Proper location analysis ensures an investment property aligns with all the differing regulations, helping to avoid a legal or financial headache down the road.

Some things to consider:

  • Zoning regulations: Divides land and restricts it for certain use only.
  • Building codes: Laws that set the minimum on certain requirements for a building, such as: plumbing, heating, ventilation, air conditioning, etc.
  • Environment regulations: Restrictions that aim to protect natural resources and public health. If a property is near a marked environmental zone then there are most likely certain restrictions for that area.
  • Tax incentives: Incentives are used by different regions to attract potential commercial real estate properties in order to improve economic development. It can prove very important when assessing the potential financial payouts of a venture.
  • Land use restrictions: Local community organizations may implement certain restrictions to dictate how a property is allowed to develop.

Anticipating Future Growth

Location analysis can provide insight into the future growth of a region. However, proper location analysis goes beyond assessing the current market conditions and considers various indicators that can provide insights into the future potential of a specific region. By identifying emerging trends, infrastructure projects, urban planning initiatives, and other factors, investors can make informed decisions that align their commercial real estate ventures with the region’s growth trajectory.

Items that help assess the future look of a market:

  • Emerging trends: Studying economic, social, and technological trends can help forecast potential consumer demands in commercial real estate. By identifying these trends early on, investors can capitalize on their investment, potentially increasing their return.
  • Infrastructure projects: These projects can have a considerable impact on a location’s accessibility, connectivity, and desirability. For example, new highways, airports, or public transportation networks can attract new businesses and residents to an area.
  • Urban planning initiatives: Urban regions often have plans that outline their vision for sustainable growth, changes, and improvements to public spaces.
  • Economic indicators: Factors such as job growth, GDP growth, and unemployment rates, provide insight into a region’s economic health and potential for growth. Strong economic indicators may attract businesses and residents, leading to increased demand for commercial properties.

By utilizing location analysis, you can assess the risk of commercial real estate investments, helping to increase the chances of a profitable venture. Need help with location analysis? Contact Linville Team Partners!

This blog post was written by one of our dedicated interns as a part of our 2023 Summer Intern Program, where they delved into the world of commercial real estate. We’re thrilled to have played a role in their education and experience.

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