Investing in commercial property isn’t the same as putting money into residential real estate. There are all sorts of factors you need to consider, and the process is substantially more complicated.
Fortunately, this guide is here to help. We look at some of the ways you can more effectively invest in commercial property and maximize the lease value you can obtain.
Here’s everything you need to know:
Analyze The Market
As always, the process begins by analyzing the market. The more you can learn about the commercial property types in demand in your area, the better off you’ll be.
Look for local trends around commercial spaces and vacancy rates. See what the market wants and whether you can meet its requirements with a simple intervention. For example, you could invest in steel high-quality commercial units if self-storage or warehousing is needed near you.
Also, look for growth opportunities. Sometimes, you can find high-growth areas around key infrastructure or population centers, allowing you to raise rentals in the future. For example, you might buy property on land that is close to a major planned development.
It also helps if you know the different commercial property types and how the rules affect them. Opportunities for retail stores and office spaces are often quite different from mixed-use developments.
Choose A Property That Works For You
The next step is to find a commercial property. One option is to look for something in a prime location with reasonable accessibility and visibility. These often command the highest values but are also great for rentals. High-flying businesses usually want the best space on offer, even if the price is high.
Check the property condition before you buy. Try to get records on things like its maintenance history and whether there have ever been any problems with things like subsidence or dampness.
Evaluating the tenant mix is also a good idea. Looking at what worked in the past can help you figure out whether things will work in the future.
If you can’t find anything in your area that meets your requirements, don’t discount building commercial property yourself. Constructing your own buildings to your specific standards helps you get something closer to what you want.
Plan Financially
Of course, whenever you make large investments like these, you need to do a spot of financial planning, considering factors like renovation costs, purchase prices, and unexpected expenses. You don’t want to get halfway through a project, only to discover you don’t have the necessary funds to see it through.
Planning financially is challenging for a lot of commercial ventures, so you may want to use an accountant to help you. These professionals can calculate things like your cap rate and your ROI, as well as your cash flow for any given month into the future.
If you need to secure financing, do this early on. Explain your project to lenders and get them to buy in. Try to figure out what they want to see from a project and how they could help you. Don’t be afraid to ask them for guidance.
Look For Value-Added
You should also look for ways to add value to any property you purchase or build. Updating or upgrading can help you attract high-value tenants.
For example, you could improve the interiors if they’re covered in cobwebs and establish common areas for workers and stakeholders to enjoy.
You could also do stuff like installing energy-efficient systems for businesses that want to appear more sustainable. Combining heat pumps with solar panels should do the trick.
Then there are ways you could deliver more on the types of things most businesses want, like better layouts and faster internet for employees. These innovations can have a profound effect on how much companies are willing to spend, especially if you can make life convenient for them.
Attract High-Quality Tenants
Lastly, ensure you focus on attracting the highest-quality tenants you can. Ideally, you want businesses that are going to stick with you for the long haul, unless you plan on providing more expensive on-demand rentals.
The best ways to attract high-quality tenants is to:
- Provide professional photography of the property showing how businesses could benefit from using it
- Use local estate agents to reach out to potential parties who might be interested (who they know want to change location)
- Offering fit-outs without including the cost in the price of the rental (covering it over a period of, say, five years)
- Accumulate leases from companies most likely to stay with you long-term, like established supermarkets
