If you are considering purchasing commercial real estate or owning and managing commercial properties, there are many ways to increase the value of the property. Updating the existing leases and making structural and cosmetic changes are some of the ways to add value to commercial real estate.
Today’s property owners understand the importance of enhancing their commercial real estate in Melbourne. Many potential buyers are more interested in a well-maintained commercial property than one that requires a major overhaul.
Let’s discuss more about the various ways to increase the value of your property.
WHAT IS VALUE-ADD COMMERCIAL REAL ESTATE?
A value-add commercial real estate is any type of commercial property such as an apartment building, retail space, office building, shopping centre, etc. You add value to your property by doing certain things such as imposing higher rents, renovating, improving the interior with fitouts, and more.
VALUE-ADD RISKS
There are two major risks involved when pursuing a value-add strategy:
EXECUTION RISK
In theory, having a value-add strategy is good. But in reality, it takes a considerable amount of work. Staying within the budget and timeframe is crucial in keeping the plan on track.
MARKET RISK
A value-added strategy depends entirely on achieving certain rents. But market rents change as you implement the value add plan, which can threaten to hinder the estimated returns.
Performing a considerable amount of due diligence can help mitigate these risks. A successfully executed value add plan can increase cash flow, market value and investor returns.
10 WAYS TO INCREASE COMMERCIAL PROPERTY VALUE
1. EXPAND THE AREA
Spacious properties are more appealing to potential buyers. Adding more space to your property increases accessibility for customers and can help acquire new tenants into the space. A simple way to increase rentable square footage is to determine the usability of the commercial property, both horizontally and vertically.
Smart fitouts such as line marking, walls and partitioning are just some of the ways to do this. Make sure to check for structural blockades, which could prevent the use of productive spaces.
2. IMPROVE THE BUILDING’S EXTERIOR
Your commercial property should be up to date so it can compete with its surrounding buildings. For office buildings, industrial warehouses and shopping centres, a substantial structure rehabilitation or major renovations can dramatically spruce up your commercial property.
Improve the aesthetic of parking spaces, hallways, lounge areas and restrooms to make your property more appealing to potential clients. New flooring, decor elements or applying a fresh coat of paint can go a long way to making improvements to your commercial space.
3. ADD OR UPDATE EXISTING AMENITIES
Updating your property with modern amenities such as lights, HVAC systems, lifts, kitchen appliances and bathroom tapware can improve its appeal. Adding amenities such as landscaped gardens, fitness centre, hardwood flooring or breakout area can also increase property value.
4. UPDATE SECURITY FEATURES
Potential buyers are attracted to secure commercial properties. Installing a robust security system can protect your property against theft and vandalism. Your property should have a tall fence and surveillance cameras in all the common areas, entrances, pathways, parking spaces, etc.
5. KNOW THE NEIGHBORHOOD
Understanding what other properties in your area sell and lease for can help you help determine where to go in for the commercial aspect of your property. It can also help if you know the area’s general market value, what it’s lacking and what is the local demand.
6. RETAIN LONG-TERM TENANTS TO AVOID VACANT SPACE
Let your tenants sign long-term contracts with lease terms in your favour to avoid vacancy and ensure a positive cash flow.
7. REPLACE PROPERTY MANAGEMENT OR LEASING COMPANIES
Examine how your property management firm operates. Find out if your property is mismanaged, or if there are missed value add opportunities and be sure to fix them.
8. ENHANCE STRUCTURAL RELIABILITY
Potential buyers are less likely to purchase a property with structural issues. And thus, you should hire professionals to restore your property’s structural reliability. This may involve repairing leaks, cracks and damaged parts of your industrial warehouse, office building or retail space.
9. INCREASE THE RENT
Raising rents is some of the easiest and fastest ways for landlords to increase their cash flow. This value add strategy can make the property more appealing to buyers.
Rent increase should be in accordance with the market trends. Consider also the inflation as well as the annual rental increase clause.
10. REDUCE OUTGOINGS
You can reduce your outgoings by going green. Creating an asset that’s eco-friendly also helps to minimise operating expenses. This can be an added advantage when you’re selling commercial real estate in Melbourne.
Property owners should embrace adding amenities and smart technologies that help reduce expenses. Smart appliances and IoT devices can keep the temperatures of shopping centres/centres, office buildings and industrial buildings at desired levels.
What’s more, they can turn off the lights when not in use. Also, smart security cameras are able to scan the license plates of vehicles. And thus, additional security personnel are unnecessary for an office building or shopping centre.
WHAT ARE OUTGOINGS ON COMMERCIAL PROPERTY?
Outgoings in commercial real estate are the different expenses that come with owning, operating and maintaining a property. Property owners or existing tenants are liable for such expenses depending on the lease agreement terms.
Here are common outgoings in commercial real estate properties:
- Property taxes are taxes imposed by local authorities based on the assessed property value.
- Maintenance and repair costs are subject to the maintenance of the property such as electrical repairs, plumbing, painting and cleaning.
- Insurance is the premiums paid to cover the risks associated with the property.
- Property management fees are fees paid to the management company or to a property manager.
- Utility bills are outgoings for the services used by the property such as electricity, water and gas.
- Landlord’s legal and professional fees are expenses associated with legal matters, these include dispute resolutions, lease negotiations and employing professionals such as surveyors or solicitors.
- Service charges are costs related to the services used within shared facilities or in multifamily properties. Examples of such services are common area maintenance, waste disposal and security.
- Building upgrades and improvements costs are collected for improving the property. These costs are also incurred for complying with regulations such as energy efficiency measures, fire safety systems or accessibility upgrades.
Both landlord and tenant must be aware of these outgoings as they negotiate the lease agreements. This will affect the final costs of occupying a commercial property. The tenants pay most of these outgoing expenses and landlords will pay some of it.
ADD VALUE TO YOUR MELBOURNE COMMERCIAL PROPERTY WITH AGERO FITOUTS
If you wish to put up your commercial real estate for sale in Melbourne, you should keep in mind the points on our list before proceeding with the selling process. Expanding the area, enhancing building exteriors and interior renovations are just some of the ways to add value to your commercial space.
The team of interior fitout designers and builders at Agero can transform your property into a commercial space that maximises investment potential. We’ve had decades of experience renovating commercial spaces across Melbourne. Contact us today!
FAQs
What value is most commonly used for commercial property?
The most commonly used method of valuing commercial real estate property is Income Capitalisation or Cap Rate. You can quickly estimate the likely ROI of your commercial real estate investment since the calculation is straightforward. Plus, it will be easy for you to compare your property against other commercial properties.
What is a good ROI for commercial property?
For commercial property, rental yields of more than 6% are considered good as they offer a high ROI. A good ROI for a commercial property will depend on the right fundamentals such as capital growth, rental growth, short supply, long lease and good location.
What are the factors affecting the value of commercial property?
Economic factors, location factors and property factors are categories that decide the value of your property.
What factors should be considered in determining the value of a commercial lot?
The capitalisation rate, lease terms, comparable sales, net operating income (NOI), location, size, condition, and property management fees are the factors that determine commercial property value.
