Property (real estate) markets all over the globe can be divided into two primary categories i.e., commercial real estate and residential real estate. While the latter is meant solely for living purpose, the former is used as a passive income source by property owners. Investment gurus may argue that returns in commercial real estate are not as high as in share market or mutual funds. But the reduced risks and a promise of consistent income make commercial real estate the first choice investment for many first-time and seasoned investors.
Micro & Macro Factors: For Amplifying CRE Returns
Generating maximum returns from commercial real estate is not an arduous task. Various variables impact commercial real estate value. All one needs to do is to develop an understanding of these factors and then make an informed decision based on the various micro and macro variables. This blog highlights the various micro and macro factors that affect CRE.
Micro Factors in CRE
Micro factors like location, connectivity, etc. are very specific to a given property. Their contribution to rental and lease value cannot be undermined. The primary micro factors include:
Architecture & Design:
Two things that add significantly to a properties price is the architecture and design.
A good architecture renders durability, usability, and beauty to the commercial estate while the design ensures optimal space utilization so that the owner can always do more.
Location is another essential factor for ensuring strong returns on commercial real estate. A neighborhood that is safe and offers easy connectivity to city centers will attract tenants, business activities, and generate jobs easily. There are some indirect benefits, too, like increased consumption drives new revenue sources for the local populace. This adds to the overall value and demand for the property.
Vacancy level is another key micro indicator of commercial real estate value. High vacancy levels indicate low attraction and may impact property price/income in the future.
Macro Factors in CRE
Macro factors are driven by external factors that directly or indirectly impact real estate markets.The key difference between micro and macro factors is the scale of impact. Micro factors impact individual property owners, macro factors impact the entire real estate market, subsequently affecting all underlying properties and players.
Here are a few key macro factors that govern the real estate market.
A sudden influx in population drives demand in property markets. The influx can be from increased birth rates, workforce migration from other states, etc. A key challenge for real estate is to match supply with demand over a consistent period of time. Growth in real estate is a good indicator of the rise in population. However, striking a balance between demand and supply is key for ensuring consistent value.
Policies and Regulations
Policies and regulations also impact commercial real estate value and appeal. Market friendly policies on finance, loan, and interest rates are seen to drive property market growth. On the other hand, stronger regulations hampering infrastructure development also choke commercial real estate markets.
Last but not least, variable construction costs command a firm control over commercial estate value. A sudden increase in the cost of labour, materials, and regulations can severely impact overall profit for commercial real estate developers and investors. During inflation, property developers find it challenging to squeeze substantial profits out of their investments.
Commercial real estate investment requires an astute eye for opportunity. Buyers must take note of the points discussed in the blog to make an informed decision. KGK Realty projects are known to offer location and quality excellence to residential and commercial real estate buyers alike. Our Solitaire Industrial Park is an opportunity for property buyers to invest in the upcoming commercial center of Jaipur, which is India's 3rd most favorable destination for business. Recognized by the Government of Rajasthan, SIP is an ideal commercial center for those who believe 'Business Must Never Rest.'