What are some of the questions one should ask when looking to invest in commercial property?
On average, commercial property offers a better return than residential property. But many potential investors are scared off by the added risk factor and the daunting task of familiarising themselves with the intricate workings of the commercial sector. Investing in commercial property doesn’t have to be an overwhelming experience, however. One simply has to ask the right questions.
One of the first things you will need to determine is what your budget is. It’s essential to determine what you can afford, as this will initially steer the process in the right direction. This may seem obvious, but often people will show keen interest in investing in commercial property, but are unwilling to provide information on their budget and specific requirements, or simply haven’t thought about it yet.
Your budget will determine many of the other details of your investment, starting with location. As with all property, location is key. You will need to decide whether you would like to invest in specific areas, or whether you’re flexible in this regard. If it is the former, you’ll have to ascertain which locations meet your budget and whether property in those areas has the potential to offer decent returns. Bear in mind that there are a range of buildings that you could possibly invest in, from small units to massive buildings in the central business districts of major cities. What will your budget allow for?
It is also important to consider the zoning of a property and the zoning of its immediate surrounds. With location being an extremely important factor in the property business, one has to pay consideration to not only the current state of the neighbourhood but also the future. You may not wish to see an industrial park spring up next to your new investment in a few years’ time. Perhaps you do. But while future development could prove troublesome, it also unlocks much potential. The development a new public transport interchange near your property could improve its value, making it more attractive to future tenants, for example.
On the topic of tenants, you’ll want to take a look at whether the building has any tenants to begin with, and whether they are of a decent quality. This will add further perspective to your risk factor. When will their leases expire and are they likely to renew? Familiarise yourself with the terms and conditions of their existing leases, including their annual escalations and expiry dates too. Combine this will an in-depth cost analysis and you will soon be able to judge whether a property is a worthy investment.
At Galetti Knight Frank we pride ourselves in our extensive knowledge and experience of the commercial property sector. If you’re looking to invest in commercial property, but have questions preventing you from doing so, please give us a call and we’ll be happy to assist you with getting the ball rolling. You can contact our Gauteng branch on 011 783 1195, or call our Cape Town office on 021 418 6308.