Downtown of the City or Suburbs: Where to Buy Commercial Real Estate?
Where to buy commercial real estate is one of the main questions that new investors often have. How do you know what Â will be the most profitable locations and what the market will do in each of the locations over time? To be more specific, we are looking at commercial property investments in either the suburbs or downtown of the city. It is a question of looking at the benefits of each location and what they offer the investor, as well as looking at the type of commercial real estate on offer.
As with any big financial decision, investors should determine the pros and cons, and with this knowledge at hand, make the decision about where to buy. One of the main aspects to commercial real estate investing, is the margin of growth that can be expected, as well as the opportunity for future development of the real estate, thus increasing its value.Â So, first and foremost, letâ€™s look at the possible pros and cons:
Pros of Buying Commercial Real Estate in Downtown of the City
- Higher concentration of people, therefore increased revenue.
Downtown areas have higher populations of people, and therefore more clients to frequent stores, more staff to choose from, and better overall revenue. The convenience factor ensures a higher turnover rate and increased revenue due to the return business.
- Higher demand for commercial tenancies.
Of course, the downtown areas are highly popular for companies and businesses due to the various factors listed below. This means that due to the demand, you are likely to rent out your commercial real estate faster and can charge a higher price for rental. There will be a huge demand for your real estate.
- Immediate returns are experienced.
This ties in directly with the previous point. Due to the higher demand for tenancies in the downtown areas, your commercial real estate will not sit unoccupied for long. You will experience immediate returns on your investment, which is what most investors aim at.
- Transportation routes are plentiful.
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There are numerous transportation routes in the downtown areas. This means that your real estate will be easily accessible for the clients, staff, employees, suppliers, service delivery personnel and others. Aside from the sheer amount of routes available, there are also more options in terms of public transport, and the frequencies of this transportation. It is easy to get to and from any commercial property downtown of the city.
- Bigger communication network.
Businesses rely on rapid, effective communication for efficient operation, and this is something that downtown city real estate offers. There are much wider network and a bigger service of communication resources in these areas, which most businesses will consider a top priority.
- Better access to facilities.
When we talk about facilities, we are talking about credit facilities and certain operational facilities. Firstly looking at commercial banks, they are far more comfortable with funding real estate deals and businesses which are located within a secure location. Downtown of the city gives them this security both in terms of ROI, and with regards to constant and reliable sources of power, which all commercial properties require to run successfully. Most cities make use of backup diesel powered generators in the event of an emergency or power outage.
Cons of Buying Commercial Real Estate Downtown of the City
- Risk of buying substandard real estate.
When there is such a high demand for commercial property in the downtown areas, certain properties are built badly with requirements not adhered to, do not keep up with the correct maintenance procedures that they should, and this means that you risk purchasing a property that either collapses or has endless, expensive repair work that needs to be completed. This is not only time consuming for you as the owner, but quite infuriating for your tenants, who could start losing business as a result of the substandard property. It may force you to lower your rental and can even result in the loss of tenants.
- Stringent by-laws and red tape.
Being located downtown of the city means that there are rather strict measures in place when it comes to purchasing and leasing commercial property. There are various bureaucratic by laws which local authorities have put in place, and this could mean spending a lot of time and money obtaining the necessary documentation.
- Risk of sudden financial loss.
Expansions as well as new building and road constructions could affect your real estate purchase and the resulting income you receive.
Pros of Buying Commercial Real Estate In the Suburbs
- Lower prices due to smaller population.
Due to the lower demand a for commercial real estate in the suburbs, and the lower population density, property prices are lower.
- Good health is promoted.
Being located outside of the city confines, there are lower pollution rates and a better sense of good health which is a draw care for certain types of commercial industries.
- Increased security benefits.
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Security tends to be better in suburban areas, and allows for higher productivity in the workplace.
- More social facilities.
The suburbs offer better social facilities in some instances, and can eliminate the need for hiring in outside contractors to supply certain commodities.
- Less traffic congestion.
The traffic is freer flowing in the suburbs and allows employees and clients to have easier, faster access to the property, which is highly beneficial for certain types of commercial entities.
Cons of Buying Commercial Real Estate In the Suburbs
- It may take longer to see returns.
Due to the lower population and lower demand for commercial real estate, it may take longer to find a suitable tenant for the premises and can take time to receive consistent and revenue from the real estate. Achieving a good return on your investment could take longer than expected.
- Access to facilities and availability of supplies may be limited.
Depending on how far out the suburb is from a city and depending on the exact location, access to certain supplies and facilities may be somewhat limited. This can make finding a suitable tenant even more difficult, and can also mean more expenses are incurred due to further travelling that suppliers and distributors might be required to do. The best advice would be to find a suburban location with as many suppliers and adequate facilities as possible within a fairly close proximity, that also appeals to as many businesses as possible.
With the market on a recent upward spiral, the thought that many investors have is to follow the main business trends. These tend to focus on the upliftment of many local, small businesses often run from suburbs, however it is also important to note that downtown areas will always be popular. The final choice may come down to the price. Downtown will always be more expensive and your research should be able to point you in the right direction, in terms of how lucrative the deal is.
While suburban commercial real estate in a certain area could be less desirable than the downtown district, one has to think about the future and how the suburbs are changing. What will this particular suburb be like in the next 10 years? Have a look at the current developments and the changes taking place. With enough forethought and insight into the gradual refurbishment and revitalization of a suburb, buying commercial real estate in this area, would be like hitting the jackpot.
Some of the main aspects of whether to invest in commercial real estate downtown or in the suburb include the following:
Access to Transport
As we noted about, each aspect of transportation has its pros. In the downtown city areas, there are many transportation options that your customers and clients will have, as well as for delivery companies and workmen, however, suburban real estate offers the free flowing traffic that will also appeal to many customers and delivery personnel. The main thought then is to look at the type of business you are planning to run, or the type of commercial real estate you intend on purchasing.
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For instance, a shopping mall complex will benefit from a more suburban area, being in closer proximity to customers and allowing better traffic access and well as fast, easy access for deliveries. On the other hand, commercial real estate that is intended for business or industrial purposes will benefit from property purchases downtown of the city where there is easy access to the building for employees as well as messengers, delivery personnel, and for meeting managers and clients. An area with a large employee force, will benefit from a location that is easy to get to via public and private modes of transportation.
Looking at prices, there are also advantages to both locations. On one hand, the more affordable suburban commercial real estate would be offset by the possibly higher delivery costs associated with being further from the various facilities and resources that it requires to operate.
On the other hand, the downtown city real estate would cost more, however, this would be offset by cheaper transportation and delivery costs by being located in close proximity to suppliers and distributors.
One would need to determine which outweighs the other before deciding on the best location taking into account the type of business that would be operating from the premises, the frequency of deliveries and courier services, and the revenue that can be expected in the long run.
Types of Real Estate
As we have seen above, the type of real estate that you are planning to invest in, will be a large determining factor in the location. Different types of industries work better in different areas, which is something that needs to be investigated before any negotiations occur. Will a hospitality centered commercial property fare better downtown of a city or in a suburban area? What are the needs of the staff? What are the needs of the clientele? What are the tenancies going to be? Are there any future developments planned?
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All of these questions will assist you in figuring out where the best place to purchase commercial real estate of this nature, and any other nature would be.
Security Features and Risks
Security is a major aspect of purchasing commercial real estate that one must not neglect. Whilst the security is strongly attributed to outside personnel or a company, we are also talking about the general security and safety of the public and staff. Here are some questions that you should ask:
- Is the downtown area a safe environment for staff to work in?
- Is the suburban real estate location in too much of a desolated place?
- Which areas have more secure parking?
- What are the security conditions of each area after dark?
- Are there any risks to patrons of any business that might be renting from you?
Space for Future Development
Now, of course, future development is a large draw card for investors. It is the intrinsic nature of commercial real estate to grow and become more and more lucrative. One thing that has to be considered, therefore, is the space that the commercial real estate offers.
Locations downtown of the city are often crowded, with suburban areas being the more obvious choice for those with developments in mind, however, there are some instances where downtown of the city can be even more lucrative for developments. For instance in cities where the downtown area is in serious need of revitalization, developments can take shape in the form of consolidating two or three buildings into one, creating a commercial business or entertainment complex, and even delving more into the multi-use concepts that are so popular at the moment.
It all depends on your vision for the future, and on what your goals are for the commercial real estate that you are investing in.
Looking at where to buy commercial real estate, there are merits to both downtown of the city and the suburbs. As you will see above, each location proves to be ideal for various types of commercial industries and therefore commercial real estate in each area can be an ideal purchase for investors. The main deciding factor will come down to what type of industry that you want to invest in, and where you hope to achieve the biggest return on your investment. Obviously the precise city will also play a big role in determining which location is more suitable and what returns you can expect.
So, there is no cut and dry answer as to which location is better for purchasing commercial real estate, therefore adequate research should be done before investing in any property taking into account all of the above-mentioned factors.