commercial property investment areas of retail, office and industrial will have their own particular and unique circumstances which will affect an investment decision, there are certain commonalities.
The following tips are a check list for when considering further commercial real estate investments or even if you’re looking to make your first investment:
Rental value —What can currently be gained in rent is, of course, important to the prospective investor/landlord, but just as important is how the property’s rental value might improve in the future. A good lease will allow for rent escalation and over a particular time frame (e.g. UK RPI, or bank rate plus a certain amount above it).
Appearance — A good property is usually well maintained and appealing on the eye (at least to the prospective tenant). Good maintenance and working with a tenant (once you have one installed) to improve it and give them what they’re after will certainly help in tenant retention; interviewing the occupants regularly and dealing with their concerns is a good idea.
Key amenities — This will, of course, depend on the purpose of the building and the potential tenant requirements. Does the building offer everything you’re target market might need? Or at least as much as the building will allow? Is this reflected in the rent? If it isn’t, you might be asking too much, or not enough depending on over or under supply of amenity.
Location — Foot-fall is a big factor for many businesses, as are other factors such as crime within the area, like-minded businesses, access, parking, travel connections etc.
Materials — Most business require access to materials, whether this is raw materials such as wood or cement, or clothing/food in the case of retailers. Does your property/prospective property allow for the delivery of such materials at the site? Will it be sufficient for your targeted tenant?
Services — Is what the property can offer in the way of telecoms, lighting, heating, water, gas, electricity supply up-to-date and appropriate for potential tenants. Existing tenant — If there’s an existing tenant in place, is the lease in the landlord’s favour? Does it offer longer term and stable occupancy? What is the length of tenure? If there’s more than one occupant, do the leases all expire at the same time? If not, what problems could this cause for you? Will empty areas have a key impact on re-rental (particularly the case with retail space)?
Mix of tenant – Closely related to the above, it can have an impact on both retail and office rentals in particular. Poor tenant selection can impact on customer numbers and prospective occupants. Do the businesses balance well? Will there be conflicting interests? For example, between a clothing manufacturer and a company of solicitors (noise, employee type etc.).
Competitor properties — Are other leases within surrounding properties in the area coming up for renewal? What properties might be coming on the market that could affect the competition in terms of the rentable value of yours?
Your management team — In a building of any reasonable size, the chances are you may need a management team in place. This is key to the success of the rental of the property in terms of rental collection, tenant relations and therefore continuity of occupancy. If the building already comes with a team, talk to the tenants about their views of the team and look out for hidden problems.
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