When a commercial real estate investor values a potential investment, there are a number of quantifiable factors to consider, such as the Cap Rate. On the other hand, there are also factors which are not as easy to quantify. For investors seeking high-potential values, here are 9 things to know when investing in high-potential neighborhoods.
Retail typically sets the trend and apartments follow.
According to Aaron Galvin of Luxury Living Chicago Realty, “Retail typically sets the trend and apartments follow.” By looking into new construction permits, you can envision the evolution of a neighborhood.
As a result, knowing the grocery stores, coffee shops, or clothing stores that will be developed in the near future gives you a glimpse into the area’s potential.
2. Municipal Planning
One great way to get the inside scoop on a neighborhood is by attending planning and zoning meetings. In many cases, these meetings are public and open to anyone to attend. If you can’t attend, many municipalities post notes from these meetings online. Gleaning knowledge from these meetings keeps you in the loop about what’s next in the development/ construction pipeline. As an investor, it can clue you in on investing in high-potential neighborhoods.
Declining employment could detract from the area’s investment potential.
3. Population and Job Growth
Discovering demographic info and learning about the neighborhood’s current residents gives you a good idea of the investment potential. On top of that, if employment opportunities are on the rise in the submarket, that’s certainly a positive sign. However, the converse is true as well – declining employment could detract from the area’s investment potential.
4. Neighborhood Renewal
As the face of storefront retail evolves in a neighborhood, the surrounding area tends to evolve as well. Look out for new businesses cropping up in a neighborhood or submarket as a strong sign of progress. This is often an indicator if you are investing in high-potential neighborhoods or not.
Another sign for investors in high-potential neighborhoods is recent and current renovations. For example, a surge in renovations on rental properties or an uptick in property sales could mean that other investors have already entered the game.
6. Proximity and Walkability
Walkability has become somewhat of a commercial real estate buzzword. Yet knowing a neighborhood’s ‘walk score’ reveals a lot about it. Overall, a higher walk score indicates the nearness of amenities, but may also show things like the residential density and available transportation options. And as Matthew Otte of Whitebox Real Estate, LLC says, “Buildings within highly walkable areas have been shown to be more popular with tenants and can command premium rents.”
7. Economic Drivers
Being aware of factors which drive the neighborhood’s economy are key to understanding investment potential. Yet, each investor may look for different economic drivers. For example, a multi-family investor may look at factors like population growth, job growth, absorption rate, and rent-to-income ratio. Regardless of the specific factors, knowing the economic drivers definitely informs you when investing in high-potential neighborhoods.
8. Infrastructure (or lack thereof)
Another strong indicator of a high-potential neighborhood is the infrastructure. Generally speaking, the better the infrastructure, the greater the investment potential. For example, the availability and quality of public transportation has a direct impact on who lives in the neighborhood. Specifically, infrastructure that improves the residents’ quality of life is a good sign of a high-potential neighborhood.
9. Trends in Nearby Cities and Submarkets
Although it isn’t always the case, sometimes, buying trends in one area spills over into other areas. For example, when certain types of businesses (like Whole Foods) open in a nearby neighborhood, it may draw in new residents. As a result, you may be able to take advantage of these trends by investing in an adjacent neighborhood.
Let CXRE Advise You
No matter where you want to invest or what investment strategy you have, CXRE is ready to advise you. Contact our team of commercial real estate professionals today to learn more about investing in high-potential neighborhoods.