Development and Re-Development

Development and Re-Development

The development of commercial real estate is no simple task. Among the challenges include financial investment, project management, and a firm understanding of the business. Commercial real estate development has seen strong gains over the past few years with continued growth into the future predicted. The economic impact of commercial development is significant across the United States. Retail, office space, industrial and warehousing all contribute to the commercial real estate sector.

Commercial real estate development and revitalization serve as a vital part of the United States economy as it contributes significantly to both the local economy and communities that are being developed. One statistic demonstrates its importance as the industry is responsible for contributing a higher GDP to the U.S. economy than the food and beverage industry. Development also helps the job market in states across the country. New commercial real estate development is taking place across the country as the economy recovers and returns to ‘normalcy’.

Pre-construction, construction and post-construction activities are all able to employ a variety of specialized professions. Throughout the pre-construction phase engineers, surveyors, architects, excavators, and brokers all contribute to setting the project up for success. Construction laborers, managers, and other skilled tradesmen all aid in making the project come to fruition. Then a post-construction crew of interior designers, building engineers and property managers all come in to finalize the property and prepare it for tenants. 

Within the areas of commercial development and redevelopment, a project must go through all of the proper steps to being ready for a tenant to move in and open for business. From the financing process to being built, finding a tenant and managing the property, every step takes time and money. The business of real estate development and revitalization can be complex and is continually evolving as financing, and building standards are ever changing. To be an effective developer managing a large variety of disciplines, overseeing inherent risks and handling finances are all important components that must be handled on a daily basis.

Commercial real estate can fuel the economy throughout the phases of development, construction, and operations. New development and construction as well as ongoing expenses to operate existing buildings all add to spending levels. Despite a slow housing market, commercial real estate development continued throughout the recession. Throughout the three phases that exist in development: 1. soft costs, 2. hard costs and 3. building operations, the creation of commercial real estate’s ongoing sustainability is made. When interest rates rise, the cost of financing and construction will also rise ultimately affecting the commercial real estate development and revitalization market.

Commercial revitalization is taking place across the country where reuse and redevelopment take place. In most cases, commercial strip corridors are commonly found with low usage and fewer tenants compared to the glory days of strip malls. While infrastructure is already in place, there is a lack of interest. Therefore, changes are being made to revitalize a property and make it new again. If a property isn’t retrofitted, then it is typically demolished and then replaced with new construction since the land is valuable and typically well located. One statistic from the Green Building Facts, U.S. Green Building Council shows that on average one billion square feet of buildings are demolished and then replaced with new construction each year.

The local market can dictate commercial development or revitalization. Due diligence on behalf of the developer is needed to research the supply and demand of commercial real estate and determine if the market conditions are favorable to invest. Demographic trends must be considered in order to conclude if the employment, population growth, and income will be favorable for commercial development or revitalization. Ultimately the profit on a project is dependent upon net income so if the numbers don’t pencil out then the project may not be worth the endeavor.