Our Brief Guide to Investing
Whether you are an experienced property investor or someone who wants to start an investment portfolio, buying a commercial property can be a daunting process.
We can help. You'll find our team has a vast combined knowledge of all things Retail & Commercial. If you have any questions at all, call us direct on 9750 6688.
Here are some pointers to guide you through the process:
Return
Return will always be considered against other investment options such as term deposits or shares and is is the key investment fundamental. While immediate return through rent collected (yield) is an obvious factor, it is important to remember that good property provides strong capital growth longer term.
Generally speaking, the stronger longer term capital growth and upside a property has, the lower the yield will be as the balance of the total return is derived through capital growth.
Location
Location is a crucial factor to consider when looking at purchasing a commercial property. Access to car parking, major roadways, infrastructure and public transport is an essential consideration.
If you are looking at buying an office or retail property then car parking is particularly important . An office building should provide ideally around 3.5 car spaces per 100m2 of floor area. If not, ensure there is ample free surrounding parking that tenants can utilise. A property well serviced by public transport may allow for less parking.
Another important location related consideration is the current vacancy rate in the immediate area and surrounding suburbs. For example, if there are numerous offices available for lease in the area, then you can generally expect an office will take longer to lease and that tenants will typically look for the most competitive deal.
We know our local area inside out, so can help and advise you to find the best investment property for your needs.
Lease Covenant
In laymans terms this means the structure of the lease and the quality of the tenant. You will want to consider the calibre of your prospective tenant, how their use compares to the immediate surrounding uses, competition from other surrounding businesses and their lease terms.
You want to secure a long term lease to a good tenant, but there are other factors to consider here such as:
- Length of lease term
- Any options included in lease
- Type and frequency of Rent reviews (CPI or fixed percentages)
- Frequency of market reviews (ideally prior to each option and midterm if the initial term of the Lease is longer than 7 years)
- Security (bank guarantee or personal guarantees)
- Makegood clauses (what is required by the tenant when they vacate)
Development Potential
A property with development upside will normally sell on a lower yield given that the value of the property is held within the land. For example, if there is a higher and better use of the land outside of a passive investment.
Remember also that the ability to develop is affected by Lease structure. If a property is subject to a long term Lease with no demolition clause in place, then obviously you cannot cash in on the development potential until the tenant vacates.
Recent Sales/Leasing Evidence Comparison
Regardless of the asking price, true market value of a property can only be determined by comparable sales and leasing transactions. So do your homework. We can help you with recent sales figures.
This is intended as a brief guide only. Each property offers a unique opportunity and should be assessed on an individual basis.
At LJ Hooker Lakemba Retail & Commercial division, we would be delighted to assist you with the process of purchasing, managing or selling your commercial property.
Talk to Louis or one of our team today on 02 9750 6688.