For example if an REIT has a larger percentage of its investments in hotels, they would typically be more affected by an economic downturn than an REIT that had invested in office buildings. Hotels are a form of property that is very sensitive to economic activity due to the type of lease structure inherent in the business. Renting a hotel room can be thought of as a form of short-term lease that can be easily avoided by hotel customers should the economy be doing poorly. On the other hand, office tenants generally have longer-term leases that can't be changed in the middle of an economic downturn. Thus, although you should be aware of the part of the cycle the economy is in, you should also be cognizant of the real estate property's sensitivity to the economic cycle.
1. Factors Governing
Real Estate Market
Retail and Industrial
2. Factors That Influence Real Estate
2. INTREST RATES
3. THE ECONOMY
4. GOVERNMENT POLICIES AND SUBSIDIES
3. 2. Interest Rates
Interest rates also have a major impact on the real estate markets.
Changes in interest rates can greatly influence a person's ability
to purchase a residential property. That is because as the interest
rates fall, the cost to obtain a mortgage to buy a home
decreases, which creates a higher demand for real estate, which
pushes prices up. Conversely, as interest rates rise, the cost to
obtain a mortgage increases, thus lowering demand and prices of
Demographics are the data that describes the composition of a
population, such as age, race, gender, income, migration patterns
and population growth. These statistics are an often overlooked
but significant factor that affects how real estate is priced and
what types of properties are in demand. Major shifts in the
demographics of a nation can have a large impact on real estate
trends for several decades.
4. 4. Government Policies/Subsidies
Legislation is also another factor that can have a sizable impact
on property demand and prices. Tax credits, deductions and
subsidies are some of the ways the government can temporarily
boost demand for real estate for as long as they are in place.
Being aware of current government incentives can help us
determine changes in supply and demand and identify
potentially false trends.
3. The Economy
Another key factor that affects the value of real estate is the
overall health of the economy. This is generally measured by
economic indicators such as the GDP, employment
data, manufacturing activity, the prices of goods, etc. When the
economy is sluggish, so is real estate. However, the cyclicality of
the economy can have varying effects on different types of real
Factors Affecting the Rental Prices:
Location remains as the most important factor for leasing the
areas in high streets and the city center. Other factors, such as
intensity of consumer traffic, surrounding business
area, architectural design of the retail real estate may also be
among factors affecting the decision making for quality retailers.
6. Industrial buildings
In all forms of real estate, location is critical. If you find a fantastic
property, but it's located 50 miles from the nearest city, you're
going to have a hard time finding employees to work there.
Consider the convenience of the location as well as surrounding
buildings; are there restaurants, shops and other buildings nearby?
If so, this will increase the marketability of the building.
Anyone looking to buy or sell an industrial property should contact
a Realtor who specializes in commercial properties to get some
comparables. What is the price per square foot are similar buildings
in the same area? If a building is overpriced, obviously that will
decrease its marketability. A competitively priced property, on the
other hand, should draw some interest.
Does the building have elevators? Is it ADA-accessible for
wheelchairs? Does it use any green technology? Does it have
features such as a kitchen, new windows and new smoke
detectors? All of these items will influence the marketability of
Finally, anyone looking to purchase an industrial building is
likely going to want a tour. What first impression does the
building leave? Was it left in disrepair by a previous owner? Is
it spotless and well-organized? While an industrial building
doesn‘t have to be as perfect as a house when it's shown to
potential buyers, it should be in good condition to boost its
8. Factors Affecting Value In Commercial Real Estate
1. Location: Location most always is one of, if not the main,
factor to value.
2. Highest and best use: The current use is not always the
3. Cyclical demand: Retail, office, industrial, residential;
depends on the economy.
4. Marketing time: How motivated are you to quickly sell
5. Market driven value: Buyer/Tenant’s best offer vs.
9. 6. Site vs. Improvements: Improvements: add to or subtract
from the market value
7. Lease value: What is the property’s net lease value?
8. Financing: Affects value; cash, bank, or owner; down
payment; interest rate.
9. Vehicle impact: driving times; ingress/egress; traffic
counts; traffic lights.
10. Demographics: Population; income, age, educational
levels; family stats, etc.
11. Competition: From other properties or from other name
brands in the market.
10. 14. Creative sales/leasing methods: Auctions;
trades/exchanges; sale/leaseback; etc.
15. Multipliers and “rules of thumb”: What do you use to
16. Income (appraisal) approach to value: Net income
divided by return desired.
12. Taxation issues: Effect taxes for the seller/landlord
13. Zoning: What is the current permissible use or what can
it be changed to?
11. 20. Adaptive Re-Use: A building that can be affordably
adapted to many uses other than its current one, has
more value than a "single purpose use" building.
17. Market (appraisal) approach to value:
similar sold properties.
18. Cost (appraisal) approach to value: Cost of site +
to build – depreciation.
19. Net lease value: Determined by competition in
market and demand factors