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.

How to Make Every Lease Count in Investment Property in Brisbane

money on table

When you own commercial property or retail property in Brisbane or Queensland, the leases that reflect the tenancy mix are the foundation of the cash flow.  In many respects it is the cash flow that attracts other investors to the property when a sale is forecast.

Then when it comes to selling that property it is the leases and the cash flow that will drive buyer interest and ultimately assist in getting a better price for the property.  So, the best idea is to negotiate your leases carefully with due regard to the future of the property and your investment targets.  Ask plenty of questions.

city building high rise
Look at Your Investment Property Comprehensively

What About the Tenants?

Another thing to remember here is that not all tenants are good tenants.  You must look at a tenant comprehensively before the lease transaction is accepted.  The things to review with a tenant occupancy include:

  • Where they are coming from
  • Lease history from other locations
  • Landlord comment from other locations
  • The tenant’s ability to pay the rent for the long term
  • The existing cash flow from the property
  • The incentive that the tenant is looking for

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.  You never know when you want to sell or refinance your property.  The leases that you have in existence will be the attraction to support your marketing processes and investment needs.

building entranceway
Attract your tenants to your property with optimized leases.

Look at the Leases and the Overall Tenant Mix

So, what can you do here as a property investor?  Look at all your leases and the broader tenant mix.  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 in its asset class.

The Advantage of a High Quality Lease in an Investment Property

retail shopping mall

So many landlords today in Brisbane and in Queensland negotiate a lease agreement with a tenant and do not think deeply about the elements of any lease to be created.  They just leave the lease to their property solicitor to formulate. 

Certainly solicitors know what to do in creating a lease, it’s just that they do not always know much about the property in question.  More often than not, the solicitors working on the lease documentation will have not seen the property at all.  That then leaves the opportunity wide open for a lease document to be prepared that does not specifically match the uniqueness of the property.

woman checking fruit in shop

Retail Properties are Different

When leasing office or industrial property the terms of a lease can be fairly standard, but when it comes to retail property the lease should be specially structured for the investment plans of the landlord and the function of the property. 

Retail property is very much a vibrant and active type of investment.  Things can happen at any time involving tenants, landlord, or customers.  That is where a good property solicitor will review the lease, match it to the needs of the property, and then balance that with the investment plans of the landlord.  Proof of this fact is that most large properties will have a special lease formulated by the solicitor acting on behalf of the landlord.

Tenant Mix Review Strategies for Retail Property Investors

shopping centre mall

When purchasing a commercial property it pays to set some realistic and achievable lease plans and targets.  This is fundamental to the future of the property and the cash flow.  It can also protect tenant mix and tenant stability.

man standing outside of office building

When looking at a commercial property for the first time, review the leases and occupancy documentation for issues involving:

  1. Type of rent
  2. Payment of rent
  3. Growth of rent
  4. Rent review processes
  5. Rent review timings
  6. Make good requirements for the tenancy
  7. Obligations on the landlord and the tenant during the lease
  8. Obligations on the landlord and the tenant at the end of the lease
  9. Seek out details of lease incentives that may be still current
  10. Review the outgoings paid under the lease by the tenant and by the landlord
  11. Look for recoveries of outgoings paid under the lease and how the landlord can get back money for that
  12. Look for refurbishment or renovation provisions imposed in the lease and how they can impact the tenant or the landlord

Remember the rules as you consider property purchase.  When in doubt seek out a good property solicitor before any decisions are made.  The critical thing to know when purchasing a commercial property is that you are not just buying the improvements but also the structure of the leases and the cash flow.

How to Watch the Commercial Property Market for Opportunities

city buildings on skyline

At times like this there are significant changes going on in the commercial property market in Brisbane, and many opportunities around.  If you have spare funds available to put into the purchase of a new commercial property, there is no doubt that good opportunities exist.  It’s a matter of what you are looking for and how much you can spend.

There is a balance being reached between sale and purchase; it’s a process of cycle and value.  The buyers can be selective, the sellers must be realistic on price outcomes, and the available funds to transact a sale are less available than say 2 years ago. The banks and finance groups are more selective on loads and loan qualification.  First time buyers of commercial property need to provide a good financial history and a strong net worth position that underpins the loan position.

What is a Property Cycle in Commercial?

This is a property cycle and we have seen it before; after years of high demand and high prices, the values reach a level where buyers are more selective and slower to react.  In saying that, a quality property will always attract attention; it is just a matter of what price can be achieved.

So many people have said that ‘timing is everything’ when it comes to property investment; today is a case in point.  Now is a good time to purchase given that some buyers are more restricted with funds access and may not be able to move on even the best of properties.  

Well positioned buyers and property investors are in one of the best of markets right now.  They can pick and choose the properties they like; they can strike a reasonable bargain without being too eager or pressured into a transaction.

woman using computer

Things to Look for in Investment Property

So, what should you look for in the property market and with commercial or retail properties?  Try some of these things to monitor in your preferred investment location and or property.  Properties with:

  1. Good tenant profiles and companies or tenants of substance
  2. Good tenant mix that balances customer interest and business sales
  3. Great location for ongoing business
  4. Solid lease documentation that supports the investment factors in the property
  5. Low threat of vacancy over the coming years
  6. A history of solid income growth and low risk of income loss in the future
  7. Good controls on expenditure and budgets to support that
  8. Long term anchor tenants of stability and popularity

So why would a property investor sell one of these great investments?  Simply because right now many property investors must sell; they must reposition their financing and larger portfolio.  This is a great opportunity for those that can buy commercial and retail property.  Timing is a good leveller for those that can wait for the cycle to come back.  Right now, it’s back; it’s a buyer’s cycle in commercial property.  It is a good time to invest in commercial and retail property right now and over the coming 12 months.

Why Tenants are So Valuable in Commercial and Retail Property Performance

tenants in shopping mall

Landlords in Brisbane should spend more time strengthening relationships and services for their tenants in commercial and retail property.  Successful tenants help a property investment thrive; they bring stability to the asset.

A stable tenant and their business can add value to the investment property in many ways over time.  Conversely, lengthy and frequent vacancies will pull back the outcomes for the investment in rents, occupancy, and property value.  An investment property that is ‘volatile’ in income and occupancy is generally harder to lease and to sell.

Some Tenants are Better Than Others

There are differences in tenants of course; some are more valuable than others as part of an investment property and its performance.  A large corporate tenant is generally a good part of the property income for quite some time; that must be protected and nurtured. 

Stability in cash flow and occupancy is a core element of property performance.  I go back to the point that more landlords of commercial and retail property should spend time encouraging the relationships and support systems for their tenants.

Where can that help be created?  Try some of these:

  • Early lease negotiation to provide the tenant with lease stability
  • The ability to change occupancy when expansion or contraction is required
  • Fair and reasonable market rent reviews with due regard to market conditions
  • Regular meetings with the tenant to ensure concerns are addressed
  • The selection of a good property manager that has experience and skill
woman operating machinery
Work with your tenants and their business.

Create a Tenant Retention and Contact Plan

When it comes to leasing and managing your commercial investment property, it pays to keep in close contact with your tenants.  Tenants are like ‘gold’ and should be encouraged to remain in occupancy providing they are ‘stable’ and ‘relevant’ to the overall tenant mix; there is a balance there to watch and cultivate.  An investment property with a stable tenant profile will always attract more buyer enquiry and be easier to sell when the time comes around.

Realistically, commercial tenants and retail tenants all suffer issues relating to business activities and occupancy over time and through the year; the same can be said for the property owners and investors.  There is a partnership between the landlord and the tenants that should be encouraged.  That is where flexibility and communication are important controls to implement as part of the property management and leasing plan.   

business men walking in street
Connect with your tenants in a positive way.

Don’t Be Agressive as a Landlord with Tenant Occupancy

Landlords that are too aggressive on rents and lease negotiations are generally those landlords that lose the respect of their tenants over time, and that will be the first sign of a rising vacancy rate in the property.  When leases come to an end, those tenants will be the first to leave or put pressure on the property owners for any negotiations.

So, what can you do here to prevent those problems from starting?  Some of these ideas may help:

  1. Meet with your tenants monthly or quarterly to ensure that any issues and pressures are identified early
  2. Watch arrears issues and talk to tenants early to identify cash flow issues
  3. Administer the critical dates in a property in a timely way to ensure that nothing is left too late
  4. Keep on top of building maintenance problems, so the tenants have no hindrance to occupancy
  5. Address any lease expiry and rent review issues early so the tenants can plan for changes and pressures
  6. Ensure that the property is functional and attractive to tenants and customers as they visit the property.  That will include all services, amenities, and common areas.
  7. Maintain the exterior of the property, so it creates a ‘high-quality’ image for all tenants as they transact business and encourage customers.
  8. Provide practical and ample car parking for tenants and customers.
  9. Maintain the plant and equipment in a property, so that tenant ‘comfort’ is provided
  10. Look at how tenants can market their businesses on directory boards or pylon signs.
  11. Provide good on-site security, access, and communication channels for all tenants.

These simple rules help greatly in controlling tenant interest and encourage them to remain in occupancy as part of investment property performance in Brisbane.  Good tenants are at least half of the equation when it comes to commercial and retail property outcomes.