Getting the Right Price for Your Investment Property

When you sell a commercial investment property, the price you achieve is driven by the market.  It is the buyers in the market that generate the interest and ultimately make the offer.  Contrary to popular belief it is not the sellers or the real estate agents that set the final price. 

What the sellers want for their property and what the agents think they can get are in reality an educated guess or wish based on market trends.  The end price for a property is driven by the buyers in all cases.  If a sale goes ahead it is because the buyers are willing to pay the money; sure the seller has to accept that price, but without a buyer making the offer, the price for a property is just a number.

Real estate agents offer real benefit to the sale process because they are working with buyers and tenants all the time.  The database that an agent has is a huge source of opportunity when it comes to selling your property. 

The bigger and better the database, the more exposure to qualified buyers your property will have.  This massive exposure that some agents have to buyers is of great advantage to you when you want to sell the property.

At the time of putting your property on the market, find the agent with the best and most up to date database; it will be a direct reflection of their market penetration and territory domination.  They are the agents that should sell your property and they are the ones that will have an idea of what buyers are willing to pay in the current prevailing economy.  Make the right choice and get the best agent to help you sell your property.

What to Look For in Commercial and Retail Leases

shopping centre mall foyer

Property owners that lease commercial property to tenants should keep a close eye on the terms and conditions of their leases.  It is all too common that a critical date or situation is overlooked in a lease and the landlord or property manager has to chase down and remedy the matter. 

The key secret to keeping a commercial property on track is in understanding the leases and thoroughly actioning any date critical terms and conditions.

city building high rise
Look at Your Investment Property Comprehensively

There are many things to look for but here are some of the main ones to monitor:

  1. Rent review dates
  2. Option to renew dates
  3. Lease expiry dates
  4. Renovation date requirements
  5. Insurance certificate of currency evidence
  6. Charges for outgoings
  7. Reconciliation of outgoings
  8. Payments of sundry charges under the lease
  9. Rent payment provisions
  10. Turnover reporting to the landlord
  11. First right of refusal provisions

The list can go on, but importantly the critical dates in a lease are handled and controlled.  In this way the property can be optimised for the landlord and the tenant.

When it comes to marketing and selling your property, the time you spend on tracking and checking critical dates is invaluable in the long term.

Contact Systems for Commercial Real Estate Tenants

tops of city buildings

When you own a commercial or retail property, it pays to keep in close contact with your tenants.  They are a key part of the property performance and should be nurtured to stabilise income from the property.

As part of keeping in contact with the tenants in your property, you can create a tenant contact plan that formalises the meeting and any feedback that may happen as a direct result.  Many larger landlords in high performing properties will create and hold tenant contact meetings with all tenants at least every 90 days.  In retail property this cycle is shorter given that a retail property is a very active type of property investment.

So just what can and should you talk to your tenants about?  Try this list:

  • Need to expand premises
  • Need to contract premises
  • Maintenance needs in the property
  • Interaction with other tenants in the same building
  • Exercise of lease option
  • Use of the building
  • End of lease issues
  • Renovation or refurbishment plans
  • Insurance
  • Terms and conditions of their lease and compliance to that

It is interesting to note that good tenants are constantly being networked by other property owners and real estate agents in your local area.  All the more reason to keep in contact with your own tenants to make sure they are happy in occupancy.

Why Commercial Property Leases are So Important in Investment Performance

When you own commercial property or retail property, the leases that reflect the tenancy mix are the foundation of the cash flow.  Then when it comes to selling that property it is the leases that will drive buyer interest and ultimately assist in getting a better price for the property. 

A property with a good lease profile will create property investor interest; it’s that simple.  It then stands to reason that the lease negotiations that occur in your property should be carefully planned and optimised with the ‘end result’ in mind.  You never know when you want to sell or refinance your property.  The leases will be the attraction to support your processes and needs.

It can also be said that not all tenants are equal when it comes to investment performance. Ultimately you would want a mix of tenants that are not too ‘volatile’ in the daily events and operations of the property.

So, What Are Your Investment Systems?

So what can you do here as a property investor?  Take a look at all your leases and the broader tenant mix.  If you own a shopping centre or a large office tower with many tenants, think about creating a list of tenants and splitting them up into priorities and retention groups. It stands to reason that you may want to keep some of your tenants more than others. What can you do to negotiate leases with your ‘desireable tenants?’ Try a tenant retention plan for starters. That strategy should feature in your investment or property business plan. Understand the deals that you are prepared to do with your better tenants. That will include incentives, rents, and lease terms.

Set some rules and standards about these things below and then see a good solicitor to help you with the lease creation:

  • Rentals
  • Rent review timings and standards
  • Option terms
  • Make good provisions
  • Lease terms and conditions
  • Ideal tenant type and operations

When you make every lease count, the property starts to take on a whole new level of performance.

What Tenants Do You Want?

As a property owner and investor, you will sometimes be actively seeking a new tenant to fill a vacancy in your property.  The best way to market the vacancy is through the dedicated efforts of an experienced real estate agent that is working for you on an exclusive agency basis for a period of 3 or 4 months; that is generally how long it takes to tap into the target market for the property and find the right tenant. 

The exclusive agency method gets the agents full focused efforts during the time that the listing is promoted.  If the property has not leased by the end of that time then something is frustrating the leasing process (such as high rents, poor quality premises, abundance of lettable space available or poor location)

Let’s say your marketing of the property has just commenced.  The adverts are on the internet and you have a signboard on the property.  Enquiry is good and inspections are occurring.   So along comes a new tenant; and then another and yet another.  All of a sudden you have 3 tenants all looking at the premises and soon the offers come in.  So the question is just who do you choose as your tenant to take the premises and why?

The issues involved in leasing decisions are complex and involve many long term issues.  The reality is that the best tenant is not always the one that is paying the highest rent; it is the one that is producing the best cash flow over the lease term (plus other things).  To analyse that fact you can do a net present value (NPV) analysis of the passing income from the lease taking into account the key factors from the lease over its duration such as:

  • Start rent
  • Lease term
  • Rent review methods and timing
  • Value of incentive provided
  • Cost of money (%) over the term

That will give you a better reason to select one tenant over another.  Interestingly the tenant with the highest NPV will not always be the one with the highest start rent.  It is the long term package and rent review structure that matters and you will see that in the NPV number calculated.

Why Commercial or Retail Property is a Good Investment Vehicle in Queensland

city buildings at night

Its times like this that we can easily see the benefits of investing long term in Brisbane property and particularly commercial and retail property.  On average, investors keep the commercial property for about 5 to 7 years; sometimes longer.  After that, they know what they can do with it when it comes to diversity, enhancement, or repositioning.  That is where investment strategies can bring value to a property or property portfolio

Investment changes can be in buying more properties, and or to sell, develop, or refurbish.  Some property owners use the capital gain from their investments over time to refinance or improve their portfolio.  Commercial and retail property is interesting and sometime challenging.  It is supported by business sentiment and local area demographics.

building facade
Quality property assets are always of interest.

Investment Strengths and Weaknesses

Certainly, mistakes are made by some investors (as in all investments) but the retail and commercial property market remains a solid investment vehicle over time for many astute investors.  Why is that? It is not hard to understand; it just takes a bit of knowledge and ongoing market research.  The returns from commercial and retail property are generally better than residential property over time although the higher cost of the asset class can delay some people from entering the market.

Know Your Location and Property Types

What can you do with this in Queensland?  Do your research into the property types and see what appeals to your plans.  Find a good real estate agent that knows the location, the property types, rents, prices, and the changes of activity in a location.  Here is a checklist to help you do that:

  • What property types do you know something about?
  • Can you focus on quality investment property in your location?
  • Have you visited your bank or financier to assess your lending position?
  • Can you hold your assets for the longer term or are you a short-term holder?

If you need help with any of these concepts in Brisbane or Queensland, contact Specialist Commercial Agent, John Highman on 0417221108

Why Traditional Department Stores are Dying in Regional Shopping Centres

retail shopping mall

It is a fact that many shopping centres in Australia, Europe and the US are suffering a ‘slow death’ with their traditional department stores as anchor tenants.  The factors of attraction with the typical and older style department stores are no longer as evident as in the early 2000s, and in most cases are now in decline. 

The retail model for department stores originated in the 1980s when we didn’t have the internet and a ‘global economy’.  We also didn’t have the huge variety of goods and services that we have today.  We didn’t have mass and multi-channel communication tools at our fingertips to buy and sell products and services.   Customers didn’t have many choices or ‘channels’ to source their retail requirements and products and services.

woman shopping for vegetables

Its a Global Retail World

The marketing of retail goods today has changed dramatically, as has the sale and supply of retail goods.  Customers today can buy just about anything they want from a huge number of suppliers online from around the world.  Delivery is fast and efficient.  Quality is also good.   Ladies fashion is a good example of a shifting merchandise category.  

The main reason customers go to a shopping centre today is for the ‘immediacy of purchase’, convenience, and for the entertainment.

Today, customers can get most of their products and services from all around the world; they can shop from the convenience of their lounge room, and in doing so they can purchase at the best prices.  Sure, they may have to wait a few days to get their goods, but they know they have purchased well, got what they wanted at a good price, and they trust the proven supply chain to deliver goods on time and accurately.

woman with shopping bag
Know your shoppers and their requirements

Convenience in Retail is Everywhere

Customers can shop from their mobile phone, or their laptop computer.  Shopping is so easy online; it is far easier than visiting a department store with depleted staffing numbers and poor service.  Traditional department stores still play with the concept that ‘big is beautiful’ in retailing.  That business model is outdated.  ‘Big’ doesn’t work in retail anymore. 

‘Experience and entertainment’ are the new factors of attraction for retail customers to a retail shopping centre of any size.  The customers want to enjoy shopping and be entertained as part of the process.  Smaller neighbourhood shopping centres, on the other hand, exist as a ‘convenience’ factor for the local community.  They will continue to offer ‘convenience’ shopping that the regional centres can’t fulfil.

Remember when ‘Uber’ took on the large taxi companies and won?  The same timeline is now evident in shopping centres.  The specialty tenants are now more relevant in the tenant mix than the larger department stores.

woman shopping

What Do Shoppers Want?

Customers are today visiting shopping centres for just a few simple reasons, and they are mostly:

  • Convenience
  • Service
  • Entertainment
  • Value, and
  • Variety

 ‘Big’ is no longer a drawcard in retail property performance and customer attraction.  Customers don’t want or need ‘big department stores’ anymore; they are just not interested in shopping in some ‘boring’ department store with a 1980’s business model and low staff numbers to serve.  Retailing has become more ‘refined’ and specialised.

If you own a larger retail shopping centre with a department store anchor tenant, be aware of these problems and ensure that you encourage the department store to adjust to the retail shopping trends of today.