Commercial property investment is complex by definition, and the new market environment is making it a lot more complex. The New Economy is phasing out traditional commercial property types, and replacing it with the 21st century version, which is a very different type of property investment issue. It’s an indicator of changing times in the property market that the big new types of business software are commercial real estate software, property valuation software and even real estate developer software.
The commercial property market, an overview
The nature of the commercial property market is changing, and not for the better for some investors. Commercial properties as investment are as far as risk goes definitely the highest risk investments in this environment. If you’ve seen any of the rundown retail centers and old shopping strips around the world, these are the primary symptoms of change. The old shopping methods are changing with online buying, which is basically more about warehousing sales than retail.
Simultaneously with this move, the New Economy businesses, which are much smaller than their Old Economy predecessors, the big corporations, are looking for commercial space. The problem is that they’re looking for these premises on their terms, not necessarily the market’s. These businesses are cost misers, and they can afford to be. Their business model reduces costs to bare minimums. They don’t own shops, they own warehouse space. They market their goods and services all over the world.
It’s a standard operational principle for New Economy businesses to reduce overheads, and that includes commercial accommodation for themselves. They don’t need big offices, penthouse suites, or the rest of the paraphernalia of the old corporate world. Quite the opposite, they need communications facilities more than they need furniture.
The good news for commercial property owners in the New Economy
The good news for commercial property owners is that these businesses are hyper-efficient and very profitable thanks to their ultra-cost-conscious ways. As tenants, if you want someone who will be able to pay their rent, these are the people you want in your building.
Another good bit of news is that since they require less space, occupancy rates can increase safely, and without the sort of reliance on one big occupant for revenue. New Economy businesses typically don’t even need IT sections, administration or other major space occupancy. They routinely outsource their IT and admin. So you can have a larger number of occupants, using less space, and paying good rates.
There’s one caveat here, but it’s an important one- New Economy business are mobile as well as cost-sensitive, and to keep them on the premises, the cost of occupancy has to be in their bandwidth.
The days of the big organizations in big buildings may have gone, but the New Economy businesses are starting to do business on the same scale. An office building full of New Economy businesses may seem more like a clinic than a place of business, but it generates a lot more business than the old offices ever did. Watch this market, because it will never get dull.