Location of commercial real estate. What do you need to pay attention to?
We publish another post regarding specific aspects of investing in commercial real estate. We have already mentioned experience of our clients, methods of calculating profits… Now let’s deal with the selection and impact of the investment’s location on the success of the entire project.
Even an empty field may be a great location, while a fashionable street in the centre of a metropolis may be misguided. We explain how to look at the map and what to analyse when choosing a location for commercial real estate.
Traffic is everything. In the case of commercial real estate, the flow of customers is what matters – the stronger and wider this stream, the easier it is to persuade tenants into long-term cooperation. And this is what we take into account when looking at the potential of the commercial facility location.
Are the locations in the centre the best?
Life is centred around the direct centres of cities and most people visit there. Therefore, it may seem that the best location for commercial real estate is at the main, most recognisable streets, the so-called High Street. However, in the last dozen or so years, the commercial structure in Polish cities has undergone profound changes. You should look with a critical eye at the addresses that until recently were the best in the city.
Under what conditions is the location at a High Street really the best?
- When we deal with the direct centre, such as, for example, Długa Street in Gdańsk or Piotrkowska Street in Łódź. However, you need to carefully analyse the immediate surroundings, because there is some risk. For example, Świdnicka Street in Wrocław, once a showroom of the city, has now declined considerably, and trade in the centre has mostly concentrated in modern, large shopping centres.
- When there is no more land in a city available for the construction of a retail park or a shopping centre at the main communication routes or in the vicinity of larger housing estates with multi-family or single-family housing.
- When the tenant is to be a service company or, in the largest and most affluent cities, boutiques of top-shelf brands.
If not in the centre, then close or “on the way”
First of all, four aspects should be taken into account: population density, the nature of the commercial environment, transport conditions of the location and, in the case of retail parks, also the location of the premises inside the facility.
- For tenants, attractive facilities are located in areas of dense development – they may be districts adjacent to the centre, they may also be more distant housing estates. However, it is also worth looking at relatively small towns located away from the metropolis, especially if a shop of one of the large chains is missing there. Such a facility may function independently, and also a small or medium rental park may successfully operate around it.
- A direct commercial environment is very significant because it usually works like a magnet. Customers are more likely to visit places where there are many shops, access to services, and a wider choice, and even competing chains benefit from it.
A good idea may be an investment in the informal heart of local trade, where small service points, grocery shops, a pharmacy or a bakery operate within a short distance from each other. There, you can count on a greater flow of customers and the fact that they are accustomed to this location. A popular gas station may also be a good neighbour.
- Let’s move on to the transport conditions – the best are the locations at the streets and roads with a lot of people traveling every day. Locations at intersections of such routes are particularly desirable. Places that can be easily reached by foot or by car, where you can conveniently park, and, in large cities, also close to public transport hubs or very busy bus stops have the greatest potential. It is important that the object is “on the way” from the customers’ point of view.
- Therefore, even a location in the middle of nowhere may turn out to be a hit. The more so because in all large Polish cities suburbs or suburban towns are developing very quickly. Thus, there is growing traffic between the centre or areas of economic activity and such residential zones.
- And how important is the location of the premises in the building? Let’s look at an investment in premises located in a larger facility. Is it better to be on the ground floor or on the first floor? It turns out that when it comes to typical retail parks, 90% of tenants choose only premises located on the ground floor. In fact, only services are functioning on the first floor.
An example of a good location
- The tenants of the retail park include a large grocery chain or, if it is not a retail park, in the immediate vicinity or nearby there is a store of a large grocery chain.
- The facility is situated among numerous multi-family or single-family buildings.
- In the first line of buildings, on a corner plot or located directly next to a road with free access.
- In the centre of the town or at an important transport route, for example at a national road, at the exit of an expressway.
Is it really worth being interested in smaller towns?
Definitely. Today, small and medium retail parks are more and more often located in smaller towns, and chains are becoming more and more interested in them. Why is it so?
- Such an object has less competition than in a big city, and sometimes it even occupies a key position, which basically exhausts the local commercial space. Therefore, such retail parks often achieve much higher turnovers compared to their counterparts in larger cities.
- Residents of smaller towns until recently had to travel to the nearest regional cities or suburban areas, where hypermarkets usually operate. Such a journey, however, is time-consuming, and for people who don’t have a car, it is troublesome. A local retail park solves these kinds of problems.
- Large cities develop spatially quickly and the risk of the loss of attractiveness of a location is much higher than in towns with 15-20 thousand residents.
- There are retail chains that have plans for dynamic development. Their presence in smaller towns allows them to achieve their goals. It can be said that this is another logical stage of their expansion.
Is the availability of parking space for customers crucial?
It is certainly an asset, but it does not always have to be a large car park. Even the chains agree to only a few parking lots, if the commercial facility is in the middle of housing developments or within a short walk from there.
Location for the future
It has been said that the key to business success is to be in the right place and time. This is very true for the location of commercial real estate. Its potential is not only here and now, but also what will be in a few years in its immediate vicinity, as well as within several or even a dozen or so kilometres. How to analyse the potential of the neighbourhood in the context of the future?
- Analyse planned new transport routes, especially roads. For example, the construction of an expressway can completely change the communication streams, and thus, the conditions for trade.
- Study the demographic dynamics of the agglomeration, district or town. Pay attention to the potential for population and employment growth as well as trends related to residential zones. Please keep in mind that there are towns in Poland that will lose residents in the coming years. On the other hand, in large cities there are districts that have been neglected until now but are covered by regeneration plans. There are suburban housing estates of single-family houses, where, however, the local spatial development plan provides for quite dense multi-family development. There are many such examples.
- Pay attention to economic development. In larger cities, the traffic generator will certainly be the office areas or special economic zones. However, the latter are also present in smaller towns.
- The planned educational investments nearby, e.g. schools at all levels of education, are also important.
- Analyse plans for the development of public transport infrastructure, keeping in mind that not only the largest ones, such as airports or large railway or bus stations, matter. The value of a location can significantly change, for example, even the construction of a railway station with a park&ride car park in one of the suburban towns.
- All this makes locations that seem to be quite uninteresting today to become a discovery tomorrow. It is worth keeping your finger on the pulse!