Transcript for Chapter 10 - Cengage Learning

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Chapter 10
COMMERCIAL AND INDUSTRIAL MARKETS
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Business Real Estate
 Includes both commercial and industrial real property.
 Typically valued on ability to generate income.
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Road to Value
Figure 10.3
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The rate of new construction, conversions, and
demolitions effect supply of business real estate
Major Value Influences
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.
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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
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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.
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Commercial Property aka Income Property
 Retail
 Office
 Lodging
 Multiuse
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Forces
 local community forces
 comparative advantage forces
 customer convenience forces
 unique forces of a particular type of business
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 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
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Commercial Neighborhoods
 Central Business Districts
 Linear Strips
 Local Commercial Clusters
 Shopping and Big Box Centers
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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.
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Community Economic Changes
 Community economy effects commercial property
 Short-term local changes
 National business cycles
 Long-term trends
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Community population change relates to
economic change
 Demographic Changes
 Retirements
 Job Growth
 Spending Habits
 Taste
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Institutional Factors
 Transportation/travel patterns
 Governmental controls including zoning and
general plans.
 Pollution controls
 Health and safety regulations
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Supply characteristics
 Number of existing buildings
 Tenant turnover
 Rent levels
 Lease renewals
 Value of properties
 Pending new construction
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Industrial Property
 Demand tied to swings in the business cycle and
mortgage funding.
 Industrial site selection includes linkage,
accessibility & good shipping system.
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Industrial Locations
Business seeks locations that reduce its costs and increase profits
 No one location is ideal
 Choice involves compromises
 Cost of land
 Skill level of labor
 Transportation costs
 Access to raw materials
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Greenhut’s Reasons for Plant Location
 Demand for the manufacturer’s product
(demand sites)
 Cost Savings (cost plants)
 Personal Reasons
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Other Plant Site Location Alternatives
 Market-oriented
 Material-oriented
 Labor-oriented
 Footloose
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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.
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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
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particular types?
Is zoning appropriate?
Are transportation systems adequate?
What are the environmental constraints?
Are the educational facilities adequate?
Are needed support facilities adequate?
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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
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 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.
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