Ideal Commercial Property
When a commercial property is bought by a business owner / operator who intends to move into the premises themselves to continue or expand their own business it is obviously essential that they buy a vacant property. The wisdom of this action should be supported by the new owner’s market research and ‘due diligence’ but since this will relate to their specific business or industry we will not consider this scenario here.
But when a commercial property is bought by an investor who needs a business owner as a tenant to be in occupation of their new property and paying rent then very often the rationale of buying a vacant commercial property with the hope of finding this tenant can be fraught with risk.
It is usually not important to buy residential property with a tenant in place, in fact the majority of residential properties for investment would be bought vacant but it is a completely different matter for commercial properties.
Unless a purchaser of a commercial property was completely conversant with its merits and immediate prospects for leasing or had in mind some major development of the site that required it to be vacant then this option of buying a vacant commercial property should never be considered. Only the experience commercial investor should consider this.
Just as for residential investments your budget will effect what type of property you look for but the check list to consider will be much the same for any quality tenanted property including;
• Proximity to an existing commercial hub
• Proximity to an existing population base with adequate infrastructure
• Economic prospects for the area
• Government plans for the area
• Is it necessary to be located on a main road
• If not then access to main roads & other transport
Building & site
• Carparking (a site without parking has little future)
• Access to driveways
• Quality of buildings (40 year old building of mixed construction or modern tilt-up)
• Clearance of warehousing, size & location of roller doors. (warehouses with lower ceilings and roller doors will not be in demand)
• Ratio of office space to warehousing / showroom. Facilities like these may well be undesirable if the office it too big.
• Presence of male / female toilets and / or showers
• Other staff facilities
• Strata fees or other managing agents fees
• Need for improvements or upgrades
• How well does the tenant maintain the site
The quality of the lease is the major determining factor in assessing how much you should offer to pay for a property. You should get independent legal advice and engage the services of a Commercial Real Estate Agent at this point.
Some points to consider on the lease are:
• Was the lease prepared by a solicitor & is it registered on the title.
• Is there a managing agent or does the owner do all this
• When did the tenancy start
• Is it a gross rent (inclusive of GST& Outgoings) or does the tenant pay rent plus GST & Outgoings
• Rent at the start of the lease and now
• Rent reviews
• Lease term
• Lease renewal options
• General conditions of the lease
• What is the tenant required to do to clean up the site when they leave.
• What is the history of the tenant (bad payer, other troubles)
• Is the tenant happy
None of the above lists are meant to be exhaustive but are placed here to highlight some of the issues involved and to encourage you to look deeper into the needs of the property.
If you would like a more in depth look into these things go to our page COMMERCIAL PROPERTY
Due to the potential problems in purchasing Commercial properties we recommend that you contact an experienced Commercial Real Estate Agent. In the course of making your own enquiries we can suggest the services of an Agent who is well able to give good advice and provide the services you need.
Please feel free to contact us on 8186 2777 or use the form below to email us.