Physical Factors in Real Estate Analysis
Physical factors of a property are important because they can be the driving factor behind a community’s economy. For example, a location next to a protected harbor would be expected to develop industries related to shipping. Physical factors can determine whether a location is feasible for development at all based on the soil conditions and TOPOGRAPHY. They can also drive the market demand for specific types of real estate development in the location. A market analysis should consider these physical factors for the subject property and their potential impact on current value and future cash flows. Physical characteristics that both limit and encourage new development are key to understanding the demand for and value of real estate in all market segments.
Physical factors important to real estate market analysis may include:
Location – Define the property boundaries and consider the neighboring properties as well. How does this location fit in with the surrounding properties? Is the property being used in a way that makes financial sense given the surrounding property types and property mix? Do the neighboring properties add value to the location or not?
Natural geographic boundaries – Some properties have natural geographic boundaries such as rivers, lakes, and oceans. While these natural boundaries limit the availability of land for development, they can also add value to neighboring properties if utilized appropriately. So, the market analysis should consider the impact on development options and value drivers for the subject due to the natural geographic boundaries.
Topography – The topography of an area can have a huge impact on real estate development and can be a crucial factor in a market analysis. Topography can influence issues such as runoff and flooding hazards as well as availability of land for development. Areas with flat plots of land that would be easy to develop. On the other hand, areas on the coast that have a limited amount of land that can be developed.
Soil conditions – The market analysis may also contain information about the soil conditions of the subject property, especially when they are relevant to the planned use or value of the property. Soil conditions are most important when the planned land use involved growing crops or other vegetation. Ideal soil types should also provide adequate drainage and be able to support the structure without slippage that can cause cracks in the foundation.
Climate – To a certain extent, climate is important in any market analysis. Climate may be directly relevant to income if the subject property is a resort or entertainment facility. Climate, however, is also important to understanding the demand for real estate and economic drivers of an area. Locations with warmer weather tend to attract people and businesses. Therefore, population and economic growth tend to be higher in these areas.
Natural resources – Historically, cities grew in locations with important natural resources. Today, natural resources are still major economic drivers of industry and employment opportunities. Natural resources can serve as an important economic factor for transportation (rivers or seaports), mining (natural gas, coal, oil, etc.), or tourism (beaches and mountains).
Water availability – Water availability is not only important for factories or farmlands requiring water for business but also for all economic stability in an area. A city without adequate water resources and water quality faces poor economic growth prospects. This in turn influences the overall real estate market forecasts for a location.
Physical factors important to real estate market analysis may include:
Location – Define the property boundaries and consider the neighboring properties as well. How does this location fit in with the surrounding properties? Is the property being used in a way that makes financial sense given the surrounding property types and property mix? Do the neighboring properties add value to the location or not?
Natural geographic boundaries – Some properties have natural geographic boundaries such as rivers, lakes, and oceans. While these natural boundaries limit the availability of land for development, they can also add value to neighboring properties if utilized appropriately. So, the market analysis should consider the impact on development options and value drivers for the subject due to the natural geographic boundaries.
Topography – The topography of an area can have a huge impact on real estate development and can be a crucial factor in a market analysis. Topography can influence issues such as runoff and flooding hazards as well as availability of land for development. Areas with flat plots of land that would be easy to develop. On the other hand, areas on the coast that have a limited amount of land that can be developed.
Soil conditions – The market analysis may also contain information about the soil conditions of the subject property, especially when they are relevant to the planned use or value of the property. Soil conditions are most important when the planned land use involved growing crops or other vegetation. Ideal soil types should also provide adequate drainage and be able to support the structure without slippage that can cause cracks in the foundation.
Climate – To a certain extent, climate is important in any market analysis. Climate may be directly relevant to income if the subject property is a resort or entertainment facility. Climate, however, is also important to understanding the demand for real estate and economic drivers of an area. Locations with warmer weather tend to attract people and businesses. Therefore, population and economic growth tend to be higher in these areas.
Natural resources – Historically, cities grew in locations with important natural resources. Today, natural resources are still major economic drivers of industry and employment opportunities. Natural resources can serve as an important economic factor for transportation (rivers or seaports), mining (natural gas, coal, oil, etc.), or tourism (beaches and mountains).
Water availability – Water availability is not only important for factories or farmlands requiring water for business but also for all economic stability in an area. A city without adequate water resources and water quality faces poor economic growth prospects. This in turn influences the overall real estate market forecasts for a location.
Transportation patterns– Current transportation patterns and proposed changes to those patterns are critical components of a market analysis. Traffic patterns determine the travel paths for the population and thus the areas that will receive the highest concentration of potential client activity. Traffic patterns are especially important for tenants whose business requires a high amount of foot traffic and visibility. A location along a major roadway can represent a much higher demand then the neighboring population would otherwise suggest.
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