Owners must constantly assess the surrounding area
Location is the most important aspect when it comes to property, regardless of market conditions.
In a buoyant property market even badly located properties are in demand. But when times turn tough, the well-located properties are most sought-after, says Tony Bales of Epping Property. Consequently, well-located properties retain their values better than any others.
Investors must note, however, that the residential, commercial, industrial, retail and leisure property sectors have different factors that constitute a prime position. Different people will also have different perceptions of a good location.
“From a property valuation point of view, it is best to try to think like most people would as it is this majority that determines the bulk of a property’s future demand.”
While being in a good neighbourhood with access to schools, healthcare and recreational facilities makes for a well-located residential property, these are not good factors for industrial or commercial property.
“Conversely, the factors that render a residential property less attractive – like being close to power stations, airports, major roads, public transport hubs and commercial and industrial nodes – are the factors contributing to well-located industrial and commercial property.”
Although it is not a 100% guarantee, it helps to follow the herd initially.
“If one is buying or renting an industrial property, a low-risk scenario would be to select property in established industrial areas close to major metropolitan areas and transport routes. But one must continually evaluate the location aspect of a property as these change over time.
“For example, parts of Sandton have become more desirable since the Gautrain was built and office buildings close to the Gautrain station are in good demand.”
Bales warns that a well-located property may not remain so forever, so owners need to evaluate a property’s location continually and assess how the area has evolved.
“There is little one can do about the location on a macro level, should it change, but you can try to adapt the property to match. For example, the community surrounding a retail centre may change. If the retail centre does not change its tenant mix to suit the needs of the new community it will suffer fewer feet through the door, less income for stores, more vacancies and, ultimately, reduced returns for the property owner.”
With large industrial premises, although less common, surrounding infrastructure may change, transport nodes can move and an expansive space might no longer attract demand from tenants.
“In this instance, a property owner needs to assess how the premises can evolve to re-attract interest. Perhaps the solution is to renovate one large space into several smaller units more suited to smaller commercial and light industrial tenants.”
By working to attract tenants and reduce vacancies, one maintains the overall income generated by a property even if the location has become less desirable.
“In the current tough market, the properties in demand are those in better locations in more established areas. With the economic tide going out in South Africa, properties with the best location will secure tenants easiest and hold their values better.”
For those who have a property in a poor location, he advises they look at how they can adapt the property in the short term to create demand and, if possible, wait for the tide to turn.