In the realm of real estate investing, where opportunities abound and risks loom, one destination has perennially captured the imagination of investors: the coastal market.
Like a siren’s call, the allure of coastal real estate has drawn investors seeking not only financial gains but also the intangible allure of living by the water’s edge.
Yet, in recent times, climate change and rising sea levels have cast a shadow of doubt over the viability of coastal investments.
Are the risks too great, or are there hidden treasures to be discovered? In this explorative journey, we delve into the world of Commercial Real Estate (CRE) and the coastal market, unravelling the benefits that await savvy investors.
With a blend of creativity and pragmatism, we unveil how CRE investors can navigate the coastal tides to uncover prosperous opportunities that stand the test of time.
Where the Population Resides
Coastal areas, comprising a small percentage of the U.S. land area, are home to nearly 40% of the country’s population. The high concentration of people living near the coast creates a strong demand for commercial properties in these regions.
Businesses recognize the importance of being close to their customers and target markets, leading to a robust demand for commercial buildings along the coast.
Cities like Miami, Southern California, New York-New Jersey, and the Pacific Northwest boast high demand for medium-sized commercial buildings, making them attractive investment destinations due to their coastal locations and large population centres.
Moreover, the rise of e-commerce and last-mile delivery services associated with companies like Amazon further amplifies the demand for commercial properties in densely-populated coastal markets.
Above-Average Appreciation
Coastal real estate, whether residential or commercial, has long been known for its above-average appreciation rates compared to properties in non-coastal regions.
The primary driver of this trend is the scarcity of land in coastal areas, which naturally increases the value of the available property.
Owning commercial spaces such as warehouses or offices in sought-after coastal cities like Miami or Manhattan can yield higher returns compared to properties in sprawling cities with ample land availability, such as Atlanta, Washington, D.C., or Chicago.
Access to Affluent Markets
The high demand and limited supply of commercial properties in coastal markets result in elevated prices and higher investment requirements.
As a result, coastal communities often have a more affluent population with higher average household incomes compared to inland areas.
Businesses that establish themselves in such markets can tap into the spending power of affluent consumers, allowing them to charge premium rents for commercial properties.
High-end coastal markets, where property prices have experienced significant surges, offer a lucrative business environment for investors seeking substantial returns on their investments.
Resilience and Value Retention
Coastal real estate has exhibited remarkable resilience over the years, even in the face of natural disasters like hurricanes and flooding.
Despite concerns about the impact of climate change, coastal properties have continued to appreciate in value, attracting investors with long-term growth potential.
Stable and well-established coastal communities with substantial tax bases have a vested interest in protecting their valuable assets.
Homeowners and businesses alike are willing to invest in protective measures, such as seawalls and flood mitigation technologies, to safeguard their properties from potential risks.
Evaluating Risks Prudently
While climate change poses risks to coastal real estate, it is essential for investors to approach these risks prudently and with a long-term perspective.
It is true that some areas face threats from rising sea levels and land subsidence, but there are also instances where the coastlines are naturally moving upwards, countering the sea-level rise.
Understanding the nuanced relationship between land movement and sea-level changes can help investors make informed decisions about the future viability of coastal investments.
Investing in Resilience and Adaptation
Smart investors in coastal markets are actively considering and investing in resilience and adaptation strategies.
By incorporating the latest flood mitigation technologies, sustainable design practices, and eco-friendly initiatives, commercial property owners can future-proof their investments against potential climate-related challenges.
Government incentives and subsidies for environmentally-friendly projects further enhance the attractiveness of such initiatives.
Capitalizing on Opportunities
The real estate market is dynamic, and it is crucial for investors to stay ahead of trends and potential opportunities.
While some may be hesitant to invest in coastal markets due to climate change concerns, others with an optimistic outlook can position themselves strategically to capitalize on historically favorable investment opportunities.
By considering adaptive strategies and innovative approaches, investors can unlock the potential for high returns in coastal commercial real estate.
Conclusion
While coastal markets face unique challenges and potential risks due to climate change, the benefits of investing in commercial real estate in these regions remain compelling.
A growing population, above-average appreciation, access to affluent markets, resilience in value retention, and the potential to adapt to future challenges are all factors that make coastal markets attractive to CRE investors.
Prudent evaluation of risks and proactive investment in resilience can pave the way for prosperous and sustainable commercial real estate ventures along the coast.
