Mar 31, 2020
Tips for Investing in Office Space
If you’ve decided to dip your toe into investing in commercial real estate, or even if you’re a seasoned pro looking to expand your portfolio, office space can be a rewarding option. But, like any investment, research and careful thought can make the difference between buying a winner and getting stuck with a dud. So, it’s important to book for property inspection services to make sure that you are on the right track. So, to make sure that you are, we’ve put together a list of four key considerations for investing in office space.
Consider the area and market
Just as you should for any property, be it commercial or residential, you should look closely at the surrounding area and the overall market. Quality commercial property should be in areas that either show economic growth or the potential for strong growth. Look around to see if local businesses are hiring and growing. Are there any proposed infrastructure changes, like a new train line or freeway that may bring in more people?
When considering the area, also look at how much office space is already available or due to be developed. Are there office blocks standing empty or is there not enough space to meet demand? Scarcity will generally mean greater demand for space, which translates to solid tenancies and higher rental income.
Neighbouring tenants can also affect the projected rent of an office space. Big-name companies can increase the rental yield by making the area more desirable for smaller businesses. These prize tenants can also help to increase the value of the property.
But don’t just watch for well-known tenants. Look at tenant turnover within the building and local area, not just the space you’re interested in. High turnover can mean the area or the property has problems that may not be noticeable at first glance.
Finally, also look at how accessible the area is. Ample parking and proximity to public transport can be major selling points for an office space.
Consider when to invest
Typically, you can invest in office space at one of three stages: during construction, after it’s been constructed and after it has tenants.
Investing in office space before or during construction has benefits and risks. This is generally when the property is at its cheapest because it hasn’t been proven yet. So there are risks involved. Besides the uncertainty of tenancies, any construction delays will mean you will have to wait before you can start collecting on your investment.
If you choose to invest after the building has been constructed, the risks are reduced. The space is ready to use so you don’t have to worry about construction delays. However, if there aren’t tenants already under contract, it could take some time to secure tenants. You may need to be prepared to accept a lower rent than initially expected.
Finally, investing when a tenant is already in place is the least risky option. However, with tenants already under contract, you don’t have any say in the rental agreement and will generally need to accept the existing terms.
Consider the tenants
As with residential property, you want reliable tenants that pay their rent on time. When it comes to commercial real estate, there is less tenant risk. The lease agreements tend to be longer than residential agreements and tenants are more reliable since you’re dealing with businesses, not individuals.
Alternatively, if you are having difficulty finding a permanent long-term tenant, you can operate a co-working space. Co-working spaces are a modern approach for smaller businesses or individuals working remotely. They can be a way to have a steady rent income without requiring a permanent tenant. However, there is considerably more administration work involved.
If you want to get the most out of a commercial property, you need to maximise the space’s potential. Basic air conditioning and internet are not enough to interest serious corporate tenants. Have a think about what you can do to make the property more appealing to your ideal tenants.
Most businesses will pay more for fully equipped, modern office spaces. If you look at some of the current trends in office space, you’ll see businesses looking for things like energy efficiency, end of trip facilities and amenities, front desk concierge services, natural light and open spaces and integrated building communication systems. You may need to invest more money to get a better return.
Like any investment, successfully getting into the office real estate space takes a lot of research and thought. Besides booking for the building inspection, following all the above-mentioned reasons will definitely make your investment worthy.