7 Things That Can Lower the Value of Your Retail Space in NJ

 

Investing in commercial property is an excellent way to increase total net worth for individuals, and to secure a future for families and corporations alike. However, not every retail space in NJ is created equally, nor are they all equally yielding.

The value of commercial real estate is greatly determined by various factors, and the value of a retail space can be difficult to determine without knowing all the facts. Whether you’re buying or selling, you should be aware of some important factors that can affect the value of a property negatively.

In order to ensure that your property decisions are right, it’s always advisable to consult a professional beforehand. Blau & Berg is here to help you on your way to investing in commercial retail space in NJ. The property you own could affect your future net worth and the livelihood of your family and employees – which is why you need experienced professionals like us.

In this article, we will discuss some basic factors that can reduce the value of commercial real estate, and why it’s important that you consult a professional or firm to help you through the process. Now let’s dive right in.

1. Location

In the year 1968, Lord Samuel of Britain seized City Centre Properties that were worth around £155 million which at the time was Britain’s biggest ever commercial property deal which clearly established Land as the UK’s largest company.

He is famous for conceiving the phrase, “Location, Location, Location,” by which he meant to convey to all the people that location is the most significant factor that impacts a property’s value. By 1983, the properties he had invested in (City Centre Properties) had risen in value to over £2 billion, so he definitely knew what he was talking about!

But, to be clear, the location of your retail may not be the only factor affecting the property’s value, but we know it holds a great significance. Factors like population growth, population demographics, transport quality, services, and zoning are all important factors. Let’s take a look at some of them.

 

Population growth

 

Population figures can be gathered easily but should not be looked at in isolation. It is one indicator from many others that we need to analyze for any particular surrounding or neighborhood. A neighborhood of strong and high base population is considered less of investment risk than a small neighborhood.

A neighborhood with a small population base may be dependent on one industry. If this industry experiences a downfall, then it becomes a higher risk area for investors. A downturn can affect the value of the property in its neighborhood, leading to reduced values. Investor’s confidence in the market place is the important thing that is affected.

 

Transport

 

Road network is one of the most important factors in determining the value of a commercial property. Roads can be divided into international, inter-city or intra-city. International and

inter-city roads come under major or arterial roads whereas the intra-city roads are routes that lie within a city and may be minor or major.

The type of road network that surrounds the property affects the simplicity of movements and provides accessibility to various important places that you need to reach for business purposes. Commercial retail spaces cluster along major roads to take full advantage of the transport infrastructure.

In such a location, if you wish to rent the property, you can collect higher rent from the tenants compared to property in locations that do not have high competition or road access.

With so many advantages available, the potential sellers and buyers of commercial real estate require information on the level of rental income that a developed property can be approximately expected to reap in a transaction that involves willing parties in such a project.

In the choice of site for commercial retail space in NJ, the buyers usually tend to want the location that presents the potential for high positive net return.

Decisions on the perfect site for retail space are often based on the buyer’s intuition or mere subjective assumptions. You are advised to seek professional help in making such decisions as they can affect the future of your business.

 

2. Increasing Mortgage Rates

 

When there is a decrease in the mortgage interest rates, the investors can afford to indulge more money in buying a property. At reduced interest rates, the monthly mortgage payments that need to be paid will be lower, and the cumulative amount to be paid over the life of the loan would be considerably less.

On the other hand, when there is an increase in the mortgage interest rates, commercial retail space affordability decreases for potential investors. With increased interest rates, they cannot afford to spend as much money on the base purchase rate because the cumulative amount over the life of the loan would increase, which will mean higher monthly mortgage payments.

Increased mortgage rate not only affects the potential investors of commercial retail space in NJ, but they affect the potential sellers. Your commercial property is not as valuable anymore because investors will have to pay more to buy your property at the increased rates. Prior to the increase in mortgage rates, your property may have been in the price range of 20 prospective investors. With the increased rates, this number might decrease to only 10 prospective investors.

You may have a harder time selling your retail space at the current base price. You may have to drop your base price in order to attract more and more investors.

 

3. Foreclosures/Short Sales

 

Other factors that reduce the value of commercial property are foreclosures and short sales in the surroundings of your property. These reduce your space value by skewing the comparable sales in your surroundings down.

For example, you have a 19,874 square foot commercial retail property. One comparable property sold for $1,350,000 and another sold for $1,340,000. A third place was foreclosed, and it sold for $1,200,000. This foreclosure will greatly affect comparable prices and could lead to a decrease in the price of your retail space.

If your neighborhood has many short sales and foreclosures, the value of your property automatically decreases. Even if they are not directly comparable, as in same square footage and the size and number of rooms, architecture, but since they are in your immediate surroundings, so can make the entire neighborhood properties depreciate in value.

If the neighborhood has a lot of foreclosures or short sales, potential investors may be reluctant to buy in the area because they are not sure of the stability of the place and may worry about the future value of their property.

How would it feel if you were looking at a retail space in NJ and then found that the property next to it had recently been foreclosed? You would almost certainly try to negotiate the price down if you were still interested in the property.

 

4. Demand and Supply

 

According to economic theory, the law of supply and demand is considered one of the most vital principles that govern an economy. The law is described as the state where, with an increase in supply, there will be a decrease in the price or vice versa, and with an increase in demand, the prices will increase or vice versa.

In simple words, this is a law that almost all people intuitively hold regarding the relationship of goods and services against the demand for those goods and services. It is stated in economics that when supply and demand are in balance, the economy is said to be in equilibrium between price and quantity.

Demand and supply are not easy to balance. To build a saleable property takes a considerable amount of time, hard work, and effort. Therefore, it might not be possible for the property to always be ready for supply (i.e. sale) when the demand from investors emerges. Thus, the scarcity of retail spaces causes a rise in the price when there are not enough properties available for sale in a given area.

Even if the land is available, the time needed to build may not meet the immediate needs of the investors. On the other hand, you can expect a reduction in the price of the property when there is an over-supply of spaces in a given area. It is not possible to move the over-supplied spaces to other areas to keep the prices at an equilibrium.

So these were some of the most important factors that influence the price of commercial property. Before you make a payment or sign an agreement, make sure you check these factors so you know what to expect from your property in the future. If you aren’t feeling sure or if you haven’t understood something properly, please seek professional help – it may very well save you from incurring a loss.

 

Finding retail space in NJ

 

Since its inception in 1932, The Blau & Berg Company has held a leading position in the New Jersey and Tri-State commercial real estate market. Headquartered in Short Hills, New Jersey, Blau & Berg is an independent, full-service commercial real estate brokerage firm providing services in the industrial, retail and office spaces, including: site selection, acquisitions, dispositions, leasing, tenant representation, portfolio sales, asset repositioning, and property and construction consulting.