3 Reasons Why Human Traffic Flow is an Important Consideration in Real Estate Investment
Retail real estate investment property is probably one of the easiest type of property to understand when considering commercial real estate investment. Anyone you ask would tell you that the shop space with the best human traffic would fetch the highest rental. This article will expand on that basic idea and explain why this statement is true and how you can apply it to your property search criteria to find a good retail real estate investment.
Before we go into the three reasons why human traffic flow is important, we want to frame this concept in a larger picture. Most people when they go to view a shop space for real estate investment purposes, usually think about what they observe but fail to appreciate the impact of zoning and development on human traffic. Spend some time talking to the real estate agent and learn all you can about the community, crime, zoning laws, highway movements and everything you can learn about the area that your retail store is going to be. You would have gotten a bargain if you purchased a zone that was slated to be redeveloped by the state as you would see an increase in rental returns and property pricing of your property.
Now that we have covered the broad picture of human traffic, the following will list three important reasons why human traffic or the lack thereof is very important when choosing a retail real estate to invest in.
Firstly, retail commercial property include shops, retail malls, short retail strips. As mentioned, places with good human traffic flow, mean more prospective customers and thus higher rental returns. But it depends once again on the type of tenants that you have. If your tenant mix is made up of convenience stores, and lots of office workers go past as opposed to residents, then the rental may not reflect such human traffic flow. Thus while the general rule that the more human traffic the better the rental, qualified human traffic is even better. Thus spending some time to scout around the neighbourhood is always better than going to the neighbourhood blindly.
Secondly, commercial prices of buildings and property is directly proportional the rental income. Thus in addition to present human traffic, as mentioned earlier you might want to consider new developments in the area and their impact on your rental prospects. If for instance a new shopping mall is opening around your building and your shop space is on the ground floor, then you will realise that you might be getting a whole lot more for your property in terms of value, or the developer might want to purchase your property at a price higher than what you purchased it for.
Thirdly, commercial real estate that enjoys good human traffic will increase the ability of you being able to lease out the place. Have you ever noticed that some places are bustling with business activity. Choose a retail property in such a place and you will be able to have tenants coming around to ask to rent your property. Banks know that a good tenancy would mean a higher chance on your part to pay their interest so would be naturally more interested. Thus it can be said that high rental occupancy ratios also leads to a perception of the banks of greater credit worthiness on your part.
In conclusion, human traffic flow is one of the key things and if not the most important factor to consider when you are thinking of purchasing a retail rental property. Spending some time to explore the neighbourhood at different times of the day would help confirm whether the real estate agent is pulling a fast one on you in terms of human traffic flow. Take your time to analyze the real estate in your area and then take massive action to generate the returns that you want to get today.
By Joel Teo 2006 All Rights Reserved