Commercial Real Estate Basics

commercial real estate agentCommercial real estate is a cyclical industry that is affected on both a national and local economic conditions, including growth in population, employment, consumer spending interest rates and inflation. While macroeconomic conditions are important factors affecting the overall state commercial real estate industry, local supply and demand conditions are by far the most important factors which affect real estate markets.

The five primary commercial real estate sectors include are hospitality, office, residential multi family and industrial. Commercial property lending may be targeted to one of these five sectors. Each one has its own characteristics. In the office sector, the demand for office space is dependant on white collar employment. Office space expansion generally traits behind economic recoveries by 18 months or so.

In the retail sector, rental lease rates and the demand for retail space are affected by employment rates, as well by consumer confidence and spending. The industrial sector is influenced by consumer spending levels, inventory levels, defense spending and the volume of national exports. The hospitality sector is affected by the strength of the US dollar; a weak dollar induces foreign visitors to travel to the USA, while prompting Americans to vacation within the states. The hospitality sector of the CRE industry market is additional motivated by consumer spending, the price of air travel, and business conditions.

Finally, in the residential-multifamily building sector, the demand for apartments is heavily influenced by the affordability of ownership housing, local employment conditions and the vacancy of existing inventory. When interest rates on loans are lower then the easier it is for a family to afford the home, instead of renting.

Population growth is a key factor for all sectors of the commercial real estate industry because it influences consumer spending and the demand for goods and services. It also influences federal appropriations and state funding for local infrastructure projects and other services directly affecting the real estate markets. Changing demographics, such as increases in the level of immigrants or retirees, are also important factors affecting the real estate markets.

This has been a brief overview about the general sectors of the commercial real estate industry.

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