As a commercial real estate owner, you have a lot to think about. But what are the most pressing challenges you can face when it comes to your property? All commercial property owners must navigate a wide variety of issues. These include fluctuations in the economy, as well as finding and retaining tenants. Monitoring demographic changes is also very important to making sure your property is profitable.
If you have invested in commercial real estate, All of these areas, and more, have an impact on how your property functions and what it can do to benefit you. But what are the most common areas where commercial property owners have to deal with challenges? Here is your definitive guide to some of the most difficult problems you could have to deal with.
Changes To The Economic Climate
A commercial property functions in a very different way to a residential one.It can be highly sensitive to changes in the economy. When the economy is booming, there is an increase in demand for commercial real estate, and the pricing will go up. However, when the economy hits a downturn, you face the issue of businesses closing, and then your tenants leave. But all is not lost. You can get ahead of the curve and try and be on top of the economy faltering.
Look out for the warning signs and keep an eye on growing trends. When you build or renovate your commercial property, look at targeting tenants with businesses that are able to weather the storm of anticipated market changes. That way when things get tough, your careful planning will keep your ship sailing on until you reach calmer waters.
Loss Of Revenue
A big fear for most real estate owners in the commercial sector is of course loss of revenue. And this is usually down to vacancy. If you are in the retail sector, it’s a very real issue. Online purchasing has been increasing year on year. And the change in consumer spending habits has been eating away at shopping mall revenue as customers take their dollars off the streets and onto their laptops and phones. When your property is empty, then you have even more issues to deal with. These can include vandalism and theft. There is also the concern of illegal dumping, robberies, assaults and drug dealing. If you own a mall, then if it is vacant it can potentially be a hazard. Graffiti artists, photographers exploring the abandoned buildings and teens using the area to hang out could lead to liability issues.
Bad weather and environmental issues can cause havoc on any property, commercial or otherwise. Hail comes in at $1 billion a year in damage, with roofs suffering the hardest impact for obvious reasons. Mother Nature doesn’t stop there – flood risk is becoming more of a hazard with the change in our seasons and more adverse weather conditions. And the majority of insurance companies won’t cover when it comes to ‘acts of God’, which can range from hurricanes to high water. If you are the owner of a commercial building, you may be trying to purchase defenses, like an inflatable flood barriers. Another precaution is to relocate your heating and cooling equipment so it’s on a higher floor. There is no doubt our warming planet will push sea levels higher and higher, which will encourage bigger storms, leading to more pressure on commercial real estate owners to take more precautions.
Changes In Demographics
Demand changes and so do what demographics require, desire and need. For example, if you have multi-family properties, what your tenants were looking for 10 years ago is very different today. Plus, the type of people you have moving into properties has shifted. Take the boomers generation. They are aging and looking for housing which is very different in the 21st Century. Amenities are very unique to their generation. Whether they are looking for a winter home, or assisted living or even senior housing.
Meanwhile millennials want a very different experience too. Open workspaces are usually a requirement, plus a work/play/live community. Hone in on your target demographic and get familiar with exactly what they want a need. Is their value placed in housing or shopping? Are they thinking about their career or retirement? Once you have found this out, you can adjust accordingly. Whether it means remodeling or expanding.
The Rise In Consumerism
Retail and other sectors in the economy are rapidly changing. While online shopping may be hitting malls where it hurts, now consumers are looking for experiences. It is all about a reimagined world so buying an item is a journey they can enjoy. Now it’s all about showrooms, and mixed-use environments. That means grocery stores with bars, and gyms with clothing stores inside. Restaurants with a bowling alley and malls mixed with retail, hotels and eateries. This also gives commercial property owners to keep the consumers in the space for longer, providing higher revenue for their tenants.
Fires in commercial properties can cost property owners billions annually. And that’s not environmental ones. Modern technology has heightened this risk. The risk of fire from lithium ion batteries as well as overheating data centers, are two such areas that commercial property owners need to worry about.
Tenants whether you love them or hate them, are part and parcel of your property making money. If you are lucky they are wonderful and are never cause for concern. However, when they are bad, they can be horrid! What about the building owner who discovered his tenant was running an illegal cannabis farm on his property. Then there was the real estate mogul who had tenants, which decided to trash his units, after he wanted them to vacate so he could do a refit.
There are also the horror stories of landlords discovering artificial walls have been put up and their apartments sublet. Finding suitable tenants in the first place is no easy feat either. It can take significant time and effort to make sure you have exactly the right tenant in your commercial property. Whether you are the owner or the manager. Considerations you need to make so you can guarantee a perfect fit are:
- Do your prospective tenants match your property location, as well as the business culture of the property? Then you need to think about the fit of them for the property itself – if they want to have a refit, this could take time and any delay is a delay in your cash flow.
Stay On Top of Trends In Commercial Real Estate
- Being on top of commercial real estate trends is essential. This can include tech needs, transportation needs and use of space. Is your property up to date in all these areas? This will reflect your tenants’ demands, and mean you can get them in a lot faster. It is also something to consider for the long haul. Green energy options are also something that can save you money for the long haul. And they can encourage tenants who have this at the forefront of their minds when doing a property search. It is always important to vet your tenants thoroughly so you can avoid these issues.
There are wide variety of challenges you have to face if you own commercial real estate. However if you take the right approach, make sure you are on top of trends, and can remodel, upgrade or build if necessary, those challenges will become unique opportunities for you to take advantage of untapped and underserved markets.
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