There are many significant factors that effect the price of commercial real estate, but perhaps few are as important as that of the local job market. Without a strong and growing job market, it’s nearly impossible for an area to support the retail establishments, restaurants, and businesses that sustain neighborhoods.
It’s pramount for any would be commercial real estate investor, whether they specialize in retail, office, industrial, or warehouse properties, to thoroughly research the health of the local job market before making an investment decision. You have to look at the local unemployment rate and compare it to the averages for the state and the nation as a whole. Those areas of the country with lower than average unemployment rates are likely to enjoy future growth, while those with higher than average unemployment may suffer from such associated problems as high crime, long listing times, and depressed lease rates.
Of course, the raw numbers for unemployment don’t tell the whole story. Would-be commercial real estate investors no only have to lookat unemployment rates, but at income levels as well. Those neighborhoods with higher than average salary levels should be far better at sustaining the high end shops that often form the backbone of commercial and retail real estate investment.
Further, real estate investors need to make the distinction between local salary levels and levels of disposable income. If the average salary is $100,000 per year, but that average wage-earner can only afford a 2 bedroom apartment in the local city (think West Los Angeles or Manhattan), these people won’t be shopping at the local high-end fashion boutiques! How much residents have left at the end of each month is a key economic factor in evaluating a neighborhood for commercial real estate activity. This means you also have to look at such factors as the local cost of food, rental housing, utilities and other regular expenses that can influence the lifestyle of those in a particular neighborhood.
Fortunately these kinds of statistics are increasingly available. In many cases this information can be found free of charge on the Internet, your local library, or through a good commercial broker. Even if income, unemployment, and job growth figures are not available online, chances are good they will be available with only a minimum of effort. Given the importance of this information to real estate investors, it is certainly worth a bit of effort to ferret it out!
Craig S. Higdon, President
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Craig S. Higdon, “The Investment Property Insider”
www.ExcelsionMortgage.com, www.InvestmentPropertyInsider.com
Craig Higdon has over 14 years experience in financing commercial loans, small business loans, construction loans, and land loans. He owns Excelsion Mortgage, a commercial mortgage brokerage offering real estate investors a wide range of resources to help them in their investment activities.
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