Facilities Check List
Practical, step-by-step guides for the busy FM
September 2001
Trends To Consider In Real Estate Acquisition Plans
Trends, both local and national, impact real estate prices to varying degrees. For example, the presence of high inflation may force up rental rates, while recession can batter property value, as we saw in the early 1990s. You must not ignore these factors when examining any acquisition because investment decision timing is critical.
Following are some major trends that need to be considered when planning a real estate acquisition.
Local Trends: Local trends have a stronger impact on improved real property than national trends. Real estate can be compared with agriculture in that productivity for both is dependent on locality. Peaches are not grown in Alaska, and major buildings are not constructed and managed in small communities. This may seem to be an oversimplification; however, a property that is subject to local problems, such as a high rate of unemployment or urban blight, will suffer regardless of the state of the economy throughout the rest of the country.
Growth Patterns: Cities generally grow according to the needs and desires of their population. There are, however, natural and man-made impediments to growth, including mountains, rivers, lakes, railroad tracks, and major highways. Another obstacle, both natural and man-made, is the capability to accommodate growth. Local authorities are prone to place moratoriums on building growth because of existing infrastructure problems, such as the unavailability of roads, natural gas, water or sanitary systems.
Typically, the principal factor determining growth is economics. If there is a high level of employment, for example, an area will prosper. Through prosperity, the working public will enhance its lifestyle and seek improved housing. As this process continues, office buildings and retail locations that were previously ignored become valuable, while other locations that were once considered desirable may no longer be considered even viable.
Single-Family Homes and Apartments. For office or retail space to be attractive, there must be an adequate supply of housing, both single- and multifamily. Corporations seeking relocation, for example, will be concerned about the availability of housing. In such cases, they are encouraged when local authorities express an earnest desire to accommodate growth.
The Business Sector. Local business trends are more predictable than housing trends. Business, particularly the retail sector, follows the labor pool. With the advent of shopping centers in the late 1940s and early 1950s, the business community brought its goods and services closer to the consumer by locating in these centralized convenience areas. You can determine the past growth of a city by pinpointing the locations of these centers and, thus, reasonably predict the locations and timing of the next generation of shopping centers. Subject to natural boundaries, concentrated shopping areas resemble the rings in a tree; as the city ages and grows, relatively uniform rings are added.
The downtown core area of most older cities was once considered to be the main shopping location. This condition still prevails in smaller communities. In larger cities, with some exceptions, the entire population no longer shops in the downtown core because far more convenient shopping is now available with a short distance of home.
Office and related business growth is highly dependent upon the availability of retail stores. The appeal of a building itself is not enough. Area amenities are fundamental to the success of a building. You must evaluate location very carefully before making a major capital investment.
The Political Climate: As a trend factor, politics play an important role in an area’s future. The growth of a city is dependent upon its attitude toward commerce and industry. If the attitude is favorable, as expressed by offering such specialized accommodations as property tax credits, commerce will be attracted. If, however, the city is opposed to growth, it will eventually stagnate financially. Every city, state or territory must increase its own number of available jobs to accommodate the growth of its population. Astute politicians contact their constituencies regularly to determine their views on key issues. Your careful analysis should include a thorough understanding of these local issues and attitudes.
This installment of FM Check List is adapted from BOMI Institute’s Real Estate Investment and Finance (www.bomi-edu.org/19062.html), course in BOMI Institute’s Real Property Administrator (RPA) and Facilities Management Administrator (FMA) designation programs.
