Those of you that already have your feet wet in the commercial real estate investing game will be well aware of how challenging and rewarding it can be. Outstanding returns, stable, long-term rental income, lower ongoing overheads and a host of other benefits await those who are prepared to do their homework, employ well thought out strategies and partner with an exceptional commercial real estate agent.
When entering the commercial property market for the first time, it’s not uncommon to play it safe and minimise risk for the inexperienced investor. However, those with a couple of deals under their belts may be itching for higher returns. As any savvy investor knows, higher returns are always associated with higher risk, which can lead to disaster. Expanding your portfolio and growing your ROI requires meticulous study, planning and an increase in your commercial property IQ. Let’s look at a few advanced commercial real estate investing tips for the more seasoned property buff:
Superior Positioning
We all know that location is important when it comes to property. Whether you say it once or three times, it’s critical to ensure that your investment enjoys prime positioning. First-timers may not necessarily have the resources to obtain a property in the most advantageous position. Now, with greater assets to leverage, you may find yourself in the enviable position of assessing more prominent locations for your next deal. There are numerous things to consider:
- Supply: If there are too many commercial properties in the area, this can exert downward pressure on prices.
- Surrounding ecosystem: A healthy range and quantity of nearby ancillary businesses that may assist your tenants is a sure-fire way to boost rents.
- Building Niche: If you can find a property with a unique profile, features or designated purpose, you are in a better position to eliminate competition.
- Proximity to transport: properties close to public transport and major arterials make it easier for staff to commute; hence they attract higher prices and rents.
- Infrastructure projects: Pay attention to large public works such as new roads, train lines, shopping centres, and others that may impact your investment in either direction.
Analyse Demographics
Understanding population growth and change trends allow you to be predictive about your investment. Urban and suburban landscapes are continually evolving. Many inner suburbs spent decades as dilapidated wastelands before gentrification and yuppification turned them into prime commercial property targets. While unthinkable twenty years ago, today, purchasing a commercial property in South Melbourne, Richmond, Preston or Brunswick could be one of the best decisions you could make. Such locations are rapidly becoming hubs of entrepreneurial activity, with commensurate increases in commercial property values. Having your finger on the pulse of demographic trends can assist you to identify areas that are up and coming, and score a bargain that will appreciate markedly in value.
Know Your Industries
In today’s dynamic economy, industries can wax and wane with remarkable speed. In the 80s and 90s, purchasing a property on which there was a Blockbuster Video outlet would have been a license to print money. Before anyone could blink, the video industry became utterly obsolete, and landlords of now toxic video store locations were scrambling to find tenants to fill empty lots. It pays to study societal, technological and market trends to identify growth industries and search for properties that are associated with or conducive to them. For example, as our society ages, the healthcare and aged-care sectors will undoubtedly expand. Acquiring an office suite in an area with healthcare or biotech start-ups could, therefore, be a wise move.
It’s About the Amenities
Smart investors are extremely discerning about the properties into which they sink their capital. Experienced investors will investigate the most minute details of a property for features that will assist in maximising rental incomes and resale value. Some items to consider include:
- Height of the building – taller buildings are perceived as more prestigious and frequently command higher rents.
- Availability of on-site parking. Bonus points if it’s free, under-cover and secure.
- Disabled and wheelchair access
- Condition of shared facilities such as restrooms, kitchenettes and lobby
- Condition and number of lifts relative to the floor space – Ideally, you’d like at least one lift for every 3000m2. The faster and more modern the lifts, the better the experience for tenants and visitors.
- Availability of lifestyle perks such as gym, showers, pool, retail stores, café, restaurants, storage and other amenities that can help tenants achieve a better work-life balance
All these factors and many more can make a palpable difference to the upside potential of the asset.
Analyse the Tenants
Purchasing a property with pre-existing tenants is a simple way to ensure that you can eliminate the potentially lengthy and costly process of searching for and securing an appropriate tenant. If the location in question is empty or only partially occupied, then paying close attention to the tenants that you sign can pay long-term dividends. Professional services such as lawyers and accountants typically make stable, reliable occupants. Whatever the industry, identifying candidates with a solid history of business success, or those in growth industries is a recipe for a secure income.
Commercial real estate investing is a highly sophisticated and complex field. If you’re looking to take your portfolio to the next level, these are just some of the criteria to consider when making your next acquisition. Talk to the professional, experienced team at MCO about how we can help you find the perfect property for your needs.