Buying A Commercial Property?

November 11, 2022

Buying A Commercial Property And What To Look For

Office space is typically referred to as "commercial."

Commercial properties make good investments because they provide consistent cash flows and a relatively stable income.

You should be guaranteed capital growth if you choose a commercial property in a desirable location. Even though you may not currently be in that league, you should still be aware of and understand the fundamentals because you never know when you might be.

The success of a commercial office building depends on both the location and the building, just like other real estate investments. Only pick "smart" buildings with the newest technology in prime locations. Never sign a contract without first consulting an attorney.

selection of a tenant

Tenant selection is crucial, just like with any investment.

As a landlord, you should establish standards for general cleanliness outside the building and the disposal of waste, even though you cannot impose as stringent requirements on the cleanliness of the premises as you would for residential or office tenancies.

selection of a tenant

Large office spaces command greater rents than open warehouses do. Commercial leases typically last three years and are updated annually to reflect changes in the CPI. Compared to office buildings, light commercial buildings can be built quickly and with reasonable ease.

Rents and occupancy rates often increase gradually and steadily during expansionary economic times and decrease significantly during depressed times, but on the whole, the industrial market is less volatile than other markets for commercial real estate.

purchase of office space

Take into account the following elements when searching for the perfect commercial investment:

Good location, as many businesses need their staff to have access to roads and major population centers.
sufficient on-site parking for both guests and employees.
sufficient access for vans and trucks. As a result, the warehouse's entrance must be higher, and the access roads cannot have a severe incline.
Good employee amenities, including bathrooms, kitchens, and offices with air conditioning.
Allowing for the possibility of on-site offices and showrooms
Large roof heights are necessary since many tenants employ contemporary shelving to put their items higher.
Getting started in the commercial real estate sector

The commercial market can be entered in a number of ways.
These often demand greater financial resources than a residential property and include:

The construction of a new building is done via the real estate market.

The best course of action would be to plan it for a known end customer who needs the office space.
Repurpose an existing structure for use as an office or upgrade an outdated office building.
Purchase a section of a larger structure that is listed on a strata title as an office building, or purchase a structure that is already occupied by tenants on a lease basis.
occupants of offices

Selecting a tenant for your office building is crucial, just like with any other investment, as careful selection will serve as the foundation for your ongoing income.

The good news is that the service sector in Australia is expanding quickly, and despite the tendency toward working remotely or abroad, there is a constant need for appropriate office space.

Tenants having a solid company history or those operating in industries with room for expansion are the most sought-after.
Over the years, lawyers and accountants have demonstrated a high degree of consistency, and they have earned the public's trust and respect.

Office space is typically leased for a period of three to five years, with the tenant responsible for covering all expenses, frequently including manager fees.
For the first three years, rents can either be fixed or subject to yearly increases based on the consumer price index.
The market rent typically changes at the conclusion of the initial lease term.

commercial lawyer

qualities of an office building qualities of an office building

Smaller investors still have access to office building purchases, though most office building investments are made by large consortia, institutions, or investment funds.

Office buildings come in a variety of sizes, from modest suburban structures to enormous, towering structures in city centers.
Office buildings are typically divided into classes according to their age, location, and facility quality.

cornice work

Three classes of office space are usually distinguished.

  • Class A buildings are the most desirable and are characterized by high-end features and amenities and offer high status to their occupants.
  • Class B buildings are usually older buildings that were once Class A but now lack modern amenities and technical features.
    They are traditionally let at lower rents and are attractive to smaller tenants due to their economic viability.
  • Class C buildings are often older and have not kept pace with trends. Sometimes there are opportunities to renovate older buildings and bring them back to Class B or A.

Features and amenities of the parking area

Parking or, if the building is situated in the city center, accessibility to public transportation for residents and clients, are two essential features of an office building that tenants demand.

Tenants of office buildings also want easy access to banks, dining establishments, and other amenities for client entertaining or lunch. As a result, there are now restaurants and shopping areas in a lot of big office buildings to satisfy the needs of tenants.

In order to avoid restricting visitor access to these buildings to side streets or backyards, suburban office buildings should be situated close to major thoroughfares like highways. Tenants frequently calculate the ratio of the area allotted to each employee when searching for office space. In the past, shared restrooms, hallways, and an average of 25 m2 were allotted to employees.

Although the amount of space needed varies greatly by industry, the average employee space requirement is now only 15 m2.

Tips for building wealth through commercial real estate

1. Being diligent, doing the study, and comprehending the market

Research everything, from the broad strokes (economic projections and vacancy rates) to the finer points, like walking the neighborhood and speaking with brokers to learn about rental rates there. Examine the state of the economy in the area you want your tenant to come from, as well as any changes to the infrastructure and future plans for the region from the local and state governments. Hire a business attorney who can give you advice on leases or conveyancing.


2. Invest in prestigious areas

Always make investments in high-demand locations for commercial, industrial, or retail space that is well-liked by tenants and buyers.
Think about parking, visibility, and ease of use of public transportation.

3. Purchase a rental home

Reduce your risks when you begin investing in commercial real estate by purchasing a property that is already leased to a reliable tenant with a long lease.

4. Tenant caliber and length of the lease.

Since the rental yield determines how valuable your commercial investment will be, a solid tenant with a long lease (at least five years) is the cornerstone of a successful investment. Make whether the rent is reasonable based on market rents by examining the rent per square meter.
There is upside potential in the next rent review if the rent in your lease is $500 per square foot and the market rent is $700 per square foot.

If the current rent is higher than the market rent, you might be overpaying for the property and have little room for improvement when the rent is reviewed. As a result, the property's capital value may be higher.

5. The arrangement of the lease

This covers the length of the commercial lease, the timing and details of rent reviews, and who is responsible for covering operating expenses.
A long lease with regular rent adjustments to the market with a minimum CPI increase and a tenant who pays all expenses would be preferable.

6. More recent building

Newly constructed commercial properties typically need fewer renovations and are more appealing to tenants. They also offer greater depreciation advantages.

7. Adaptable style

This means that when subletting, you won't encounter an ineffective layout. This implies that the amount of office space can be easily changed in industrial buildings.

8. Invest in properties with room for growth.

Look for underdeveloped or undercapitalized properties or those where rent is below market value.

Now is the time to take advantage of the opportunities that the current real estate markets offer.
Get in touch with Ryder Lawyers - Commercial Property Lawyers

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