Setting Your Commercial Property Price

city buildings on harbour

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 and sometimes other pricing evidence.  In saying that, the end price for any commercial property is driven by the buyers in all cases. 

Price Changes

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. At times the real estate market can be ‘saturated’ with overpriced properties. Time on the market is a big factor in any property sale. If you are ready to sell your property, then consider a ‘fair’ price, but not an ‘excessive’ one.

money on the table
What is your property price? What is it worth?

Real estate agents offer their clients 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. 

Database Value

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 of potential buyers; 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.

How to Boost Investment Performance in Commercial Property

city buildings at night

In commercial real estate, the yield of the property is commonly referred to by investors.  It is a point of reference or standard for the property type and the location. 

Property yields in this market vary considerably as property investors focus on different property types and situations. Investors come and go from the Brisbane property market based on the ‘opportunity’ factor. That assessment will be different for many investors as they choose property types and precincts to invest in.

Always use caution when considering yields in this market.  It is notable that many yields have moved out by up to 1% due to economic pressure and changes.  There are still some good properties and investments available.

man holding eight ball

Here are a few of the key points to look at when it comes to assessing property opportunities.

  1. Strength of income is paramount. Most particularly this will come from the leases on the property.  When a lease is well structured it will underpin and strengthen the price for the property.  Look at things like rent types, outgoings recoveries, option periods, length of lease and make good provisions.
  2. Tenant and landlord covenants will feature in the lease and put obligations of occupancy performance on both parties.  For this reason, the checking of the lease before sale or purchase is high on the agenda for the experienced investors.  A good solicitor will help with the process.
  3. Physical aspects of the property and structure should always be checked by experts.  In this market, a due diligence process in any property sales and purchase is a wise move.  A due diligence condition in a contract could take some days if not weeks to be fully checked and satisfied.
  4. Occupational Health and Safety together with the elements of Essential Services and Mechanical performance on the property should be checked by experts including engineers.  Legislation in this regard can impact the property with high costs of remediation or changes to Essential Services.  Compliance is critical for the property investor.
  5. Permitted use, Zoning, and Building Occupancy Certificates on the property should be checked and related back to how the property is currently used.  What you need to know is if any breaches are existing now.
  6. Survey plans and as-built drawings should be sourced on every property purchase.  You will need these critical drawings many times in the future when tenants come and go from the property.  They are very expensive to obtain when the go missing.
  7. Location is one of the major factors in the future of the investment property, but do not overlook potential or known changes to the regional demographics and business community.  They can impact the rental and future leasing opportunity in the property.  You can have the best property, but if it is in a poor location or contracting business community, then the property as an investment will have to be reassessed.

These elements will help you consider future property purchase opportunities.

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.

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