When considering a commercial property investment, it is wise to set standard rules for the review to compare the various properties’ opportunities. Investment properties typically exist in the retail, office, and industrial property markets. We will not go into the other tourism and leisure property types in this article as they take more comments and lengthy reviews.
Here is a useful list to consider with investment property.
Some Key Property Concerns
- Rent: The existing rent levels are important to the investor or landlord, but the future rent levels are more important. It is a matter of what rent escalation the lease allows for and in what time frame. A good lease with a good rent review profile in a sound and well-managed property will always attract property investors.
- Outgoings: These are the property running costs. Importantly they should be in balance and comparison to other properties of similar types in the same region. If the outgoings are out of proportion to similar properties, then you need to know why, as any astute property buyer will ask about the outgoings. They know the average outgoings in the area and will not want to pay above the norm unless there is a solid and sound reason.
- Supply and Demand: How much other property is coming into the market in the next few years? Will that property affect the property that you are looking at? Could this impact the tenant profile or interest in your property? This equation or consideration is called supply and demand. It will affect buyer and tenant interest in the region in which your property is located.
- Location: Does the property give good exposure to passing traffic or customers, and does it have good access for people and motor vehicles? Add to this the consideration and availability of car parking.
- Design: Is the property user-friendly and attractive? Good property investment usually looks good and is well maintained. This maintains interest in the property from the tenant’s and the customer’s perspective. If these people feel good about the property when they visit or use it, you are well on the way to good property performance. As part of this process, you can conduct interviews with people as they use the property to see and identify any latent concerns. In the case of retail property, this is highly recommended as the retail property is strongly geared to customers’ sentiments.
- Amenities: Are you providing everything a modern business, tenant, or customer needs? Amenities are many things, depending on what the property is doing or serving. Most people that use the property expect ease of use and access to amenities, including toilets, car parks, common areas, etc. Retail property has a higher level of consideration in this category.
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- Services: Are your property services modern and performing well? This would include water, gas, roads, electricity, lighting, telephones, etc.
- Parking: Are customers and tenants well served concerning the parking of vehicles? Ease of access to the property is critical and at a premium today. Motor vehicles are part of business and life for all people. If parking is not well catered for on the property, then the interaction of the property with public transport is critical.
- Tenant Covenants: This relates strongly to the leases and documents of occupation on the property. The word covenant relates to the clauses or lease terms. Every lease can differ, so it pays to read all occupancy papers or leases. Are the leases and tenant profiles strong and attractive to future occupancy?
- Tenancy Mix: Perhaps this is more critical in a retail property but can impact office property. Some landlords must be cautious about the tenants they select for a building. A low-profile and chosen poorly tenant may detract from the customers that visit the facility. Other tenants will also become concerned and potentially have little interest in ongoing occupancy. This then says that not all tenants are good tenants for the property. Add to this another question of proximity and placement of tenants to each other. Are the tenancies well balanced to satisfy the customer’s demands? Can tenants located near each other affect each other’s business by impacting customers, products, services, hours of trade, or staff?
- Management: The strength and processes of a property management team will make or break a property. The property management processes will impact many things, including rent, operating costs, tenant sentiment, and lease stability. For this reason, ask the tenants about the property management experiences they have seen recently. Any negative comments should be explored for hidden problems.
- Lease Agreements: Are they landlord favorable, and do they provide long-term attractive and stable occupancy? What is the length of tenure or terms of all the leases, and do they expire simultaneously? Does this present an issue to the landlord regarding property stability and exposure?
- Transport Routes: All modes of transport to the property should be examined. Make your assessment as to whether they are convenient and modern. Do they serve the property’s tenants and customers, and how is that done?
- Source raw materials: In industrial property, access to raw materials can be an issue for the tenant. What raw materials are needed by the business or tenant, and can they get to them easily?
- Power Supply: Industrial property will usually need a lot of power for machinery. Access to that power is a decisive factor for the tenant that occupies the premises. Ask the local power authority if 3-phase or high-tension power is nearby or available.
- Labor Availability: Business tenants need a labor source as part of their operation. This labor supply needs to be stable and convenient. This is why businesses are located near transport corridors on the radial road points to a city or town. Is the labor market nearby and active? Can that labor supply reach the property easily? Public transport will enhance this situation.
- Goods end market: If tenants manufacture anything, they must move it to their customers. How close is the product-buying market for that tenant, and how will they get to it? Is the need for the tenant’s goods or services growing and strong?
- Rent and Vacancies: These are always a concern in investment property and need monitoring. Shifts in population and zoning regulations regarding property can quickly shift the attractiveness of occupying a property.
- Pre-lease market: These newer properties are coming on the market soon. They are usually keenly priced or rented and will impact other existing properties. The property investor or developer in the newer property only has one goal: to fully lease the finished property as quickly as possible. Expect them to chase the tenants in your building.
- Owner Occupiers: Investment property moves in cycles between renting and ownership. Many businesses will do either, depending on what is more
- attractive to them in the prevailing economic conditions.
- Investors’ demand: The balance between the property and share markets is interesting to monitor. Investors move into property when they need long-term investment stability. Property investment moves to the front line and becomes the investment of choice if the share market is volatile and unpredictable. The only problem investors can have is getting the finances ce from the banks when needed. This movement between investment types says you should monitor the possible return levels between shares and property.
- Corporate Businesses: Major businesses like to off-load capital from balance sheets. This means a potential sale and leaseback of property from time to time. This is usually done when the property is in the last stages of use or needs the tenant. They may sell the property and take a lease for years while creating the next property strategy level. Always look for tenants and businesses in the stages of change or flux. Mergers, acquisitions, expansions, contractions, etc., all create pressures on the property that the tenant may occupy.