Property developers and agents often highlight strategic locations of their properties when they sell it to buyers. You would see marketing and advertising efforts focus mainly on how a property has proximity to restaurants, schools, and retail stores. They bank on this proximity to increase the value of the project because of the convenience it will afford its homeowners. However, only a few buyers know and understand that closure of these retail stores can significantly affect residential property prices.
How Can the Closure of Retail Affect Residential Property Prices?
Several economic studies prove that there is a direct correlation between proximity to commercial enterprises such as retail stores and housing prices
The 2003 study by Franklin and Waddell found that convenient access to universities and commercial establishments has positive effects on residential housing prices. However, a study by Frew and Jud found that the level of business activity in particular zip codes can reduce the value of a residential property. This study is supported by several studies that show commercial establishments, except for gas stations and fruit and vegetable market investments, have adverse effects on the residential property prices.
How can the closure of these retail stores affect property prices?
Somehow, a previously active neighbourhood within close distance from a struggling commercial or retail establishment may signal a weak local economy and conservative consumer spending. For most investors, it is not a good sign. Investors will feel cold in putting money into the area when they think their money will not return any gains. When there is uncertainty in the market, the demand for housing will eventually turn sour. Following the economics theory, decreasing demand with concurrent oversupply will lead to price falls.
What Steps Can the Local Economy Do to Prevent House Price Falls?
Closures lead to vacant structures. This vacancy is not a pleasant sight to for investors. However, there are steps that the town and council can do to change this.
For one, they have to look at the consumer demands and shopping habits of the people. Looking at the current shopping behaviour, one would notice that e-commerce is on the rise. As a result, it increased the demand for warehouses to store goods for delivery. The local council would greatly benefit by changing the zoning in these areas.
Another useful property investment worth looking at is the rise of co-working spaces. Closed retail stores can be converted to a multi-use co-working space where different businesses and young professionals in the community can convene and work together to bring back the vitality of the local economy.
The economy, along with the real estate market, must adjust to the demands of the consumer if they want to stay relevant. Residential property price falls can be temporary if the investors and the government can find ways to address the underlying issues. It is essential to have a clear understanding of the critical factors that drive the real estate market. Once identified, a comprehensive evaluation of potential investments can take place.