Commercial investment requires homework
Property has always been considered a good investment because whether the market falls or trends change, values will recover in time. However, when investing in commercial property, one should understand certain factors before making a final commitment, says Leon Breytenbach, national manager of the Rawson Property Group’s commercial division.
“Before you start, it would be wise to look at the market trends and exercise patience until the right property becomes available. It will be worth your effort in the long run.”
Breytenbach says investment in commercial property was traditionally the preserve of institutional investors, but private investors are presently seeing an opportunity to dabble in the commercial market, not necessarily as sole buyers, but in cooperative companies or groups.
Before starting, you needs to decide what type of property you wish to own. “Wisely chosen commercial properties can provide higher returns than residential, between 6% and 12% as compared with 1% to 4% growth in residential properties,” says Breytenbach, adding that the risk to income tends to be lower in commercial property and the leases are generally longer, helping to stabilise your cash flow.
Investors should then check with town planning to be sure there are no “major surprises” in store after they have made their purchase. They need to be informed about overlay zones as these supersede zoning regulations, and should ask important questions such as:
What is the traffic like in the area?
Will my staff have difficulty getting to the premises?
Is there adequate public transport in the area for the workforce to use?
Is the area safe for clients and employees travelling to and leaving the property?
Is there sufficient parking?
Will my company cause noise, pollution or traffic congestion evoking complaints from neighbouring businesses or properties?
Is there sufficient passing foot traffic for your future tenants, if their success depends upon it?
In order for an investment to be successful, it must suit the needs of the tenants a property owner wishes to attract. “Additionally, find out whether there are any environmental concerns – such as extreme air pollution or the declaration of the area as a reserve for the protection of a certain creature or plant – and ask yourself if this will impinge negatively upon your business,” Breytenbach says.
Investors should also assess all possible risk factors. “For example, having a single tenant lays you open to the possibility of having several months with no income, while still having to service the usual outlays such as bond, rates, municipal services and so on if the tenant does not renew their lease.
“Multiple tenants in an assortment of business genres should ensure that only one or two units may become vacant at any one time.”
He says it is also advisable to have funds set aside to cover the occasional vacancy or for when maintenance, regular or unexpected, is required, so your liquidity is not jeopardised when problems arise.
Diversifying your investments will help you to weather most economic storms, Breytenbach says.