Choosing the best location for a commercial real estate investment takes thoughtful consideration. Properties in non-prime areas might not yield the ROI investors are looking for. Identifying the right location for a commercial real estate investment can mean the difference between earning or losing money. Whether you're looking to get started in commercial real estate investing or simply looking to optimize your investment portfolio, location can make all the difference for commercial real estate properties.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Is the Property Located in a High-Demand Area?

The first step is to consider the economics of the local rental market. Is it in a prime location that's high in demand? For instance, is there a college nearby where housing is highly sought? Is it near public transportation that boosts property value? Prime locations can net higher rents than properties located farther from amenities or in more secluded areas.

Be sure to carefully conduct your market demand analysis; are you considering the right type of investment property for the demand in the location? An area could have enormous demand for warehousing and multi-family units, but if your plan is to build or buy a retail space, that demand is essentially irrelevant.

What's the Rental Competition in the Area?

Competition is a huge consideration. Before investing in a commercial real estate purchase, investors should conduct a competition analysis: meticulously check out the competition in a specified radius. Are other comparable rentals in abundance? The presence of competition can indicate the demand you're looking for, but if the concentration of rental properties is too high, there could be market saturation.

Take a look at the number of local rental listings against the area's total rentable properties to determine potential market saturation. Even if there's a ton of competition in the location, further demand can be indicated by a limited number of rental listings.

Determining the level of tenant interest in an area is critical before making a bid on or building a property. To help do this, talk to other commercial investors and local realtors who are well-positioned to provide good information to help evaluate if an area would be a wise investment.

Is the Site Visible and Accessible?

For most commercial properties, especially retail and offices, being in a location that is easily accessible and visible can significantly impact success. Proximity to major roads, public transport, and foot traffic are crucial factors. Accessibility considerations include:

• Transport Links: A property that's easily accessible via major highways, roads, and public transport is more attractive to businesses and their customers.
• Parking and Infrastructure: Adequate parking facilities and well-maintained infrastructure around the property also enhance its accessibility. Properties that offer ample parking space stand out, especially in densely populated urban areas where parking can be a challenge.
• Supply Chain Considerations: For industrial or warehouse investments, accessibility to supply chains, ports, and transportation hubs is essential. It reduces transportation costs and improves efficiency for businesses that rely on shipping and receiving goods.

The quality and level of a given location's visibility is also a make-or-break detail that warrants consideration. For retail spaces, offices, and multi-family residential developments, things like foot traffic and branding and signage opportunities are critical. 

What Does the Local Economy Look Like?

Before investing in a commercial property, it's a wise strategy to examine what the local economy is like. Are businesses steadily leaving the area? Is unemployment rising or falling? Are local businesses booming? Ideally, investors want to put money into locations where people and businesses are moving in, not out. Good indicators a local rental market is hot with a more robust economy include:

• Presence/availability of in-demand public amenities
• Large and/or growing job market
• Accessible public transportation
• Future development plans bolstered by favorable property tax rates

What are the Local Regulations?

Before investing in a property, it's essential to research all local regulations. This includes taxes, permits, and zoning. Many areas have stringent zoning laws, and in some locations, getting approval for commercial zoning can be difficult or impossible. Even if the ideal location is identified, if the zoning isn't possible, it might as well be on the moon. Can it be rezoned, or can permits be obtained? Investors should always be looking at the future for potential growth opportunities and expansions. This doesn't apply to all properties, but depending on your goals as an investor, it should be a consideration.

Is the Area on the Rise?

Investing in a commercial property is a considerable commitment that comes with inherent risk. It's essential to consider the current condition of the neighborhood, whether the properties are competitively priced, and plans for future development in and around the location. 

• State of the Area: Most important for potential residential and retail investment, but worth consideration for any commercial real estate investment.
• Prices in the Area: How competitive are prices for commercial properties in and around the location? If they're exceptionally high or low, further investigation is vital as it could indicate an underlying issue or opportunity. 
• Future plans for development: Future development can make or break your commercial real estate investment. They can enhance the value and demand for your property, but if you invest in a warehouse in the proximity of a massive upcoming industrial park development, your property could be in trouble.

Are there any Environmental or Structural Issues?

Although there are several differences between commercial and residential real estate, they have one thing in common: inspections. As with purchasing any property, investors should have a meticulous inspection done. A standard inspection is essential, but also consider performing other types of inspections. Additional inspections to consider include internal electrical components, building code violations, mold, pests, radon, sewer lines, septic systems, fireplace and chimney, lead paint, HVAC, and asbestos. A location could be perfect for your plans in every visible way, but if there's groundwater contamination below the surface, your investment could be doomed.

Other Tips for Choosing a Commercial Real Estate Location

To identify the right location for your commercial real estate investment, experienced professionals and peers will be the single most important resource available to you. Use these final tips to round out your location-choosing toolbox:

• Enlist help: Speak with a real estate agent specializing in commercial real estate and see if they can help identify any issues that might be present; these issues may not jump out to most people, but a seasoned local expert will immediately notice them.
• Be selective: Don't jump at the first opportunity. View several properties, observe their comings and goings, and research each possibility before making a final commitment.
• Talk to other investors: Talk to other investors and ask about the location you're considering, the specific space, and any further pertinent details that could affect a rental's long-term profitability.
• Have backup options: If a first choice becomes unavailable, remain flexible and look to other options. Don't let a deal falling through take the wind out of your commercial real estate investing sails.

Success in Commercial Real Estate Is All About Location

Finding the right commercial property takes time, but asking the right questions and doing sufficient research increases the probability that the right choice of location will be made. As the old saying goes, it's all about location, location, location! It doesn't matter if you're buying your first investment property or your 21st—choosing the wrong location can turn out to be a disaster, but the right one can yield great rewards and a terrific ROI.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.