Have you assessed the value of your commercial property recently? A good starting point is to look at its profitability. There are several ways to increase the profitability of your building and thus add value. “You can garner greater profits by increasing income or by reducing expenses,” says Leon Breytenbach, National Manager of the Rawson Property Group’s commercial division. “Another method to add overall value,” he continues, “would be to make improvements to the actual premises.” Below are these suggestions in greater detail:
How to increase income
Synergy
Harmonise tenant mixes so that all of your tenants may operate at an optimal level. They need to be in a similar category in order to attract the most suitable clientele for each other and a good example of this is in a retail centre. “You would not place a tyre and brake outlet next to a high-end clothing store,” says Breytenbach, “Instead you group similar stores together, allowing the clientele in each area to be drawn to more than one tenant, thus improving the success of all.” With a conducive tenant mix ,the landlord would be entitled to ask a higher rental from the right tenant. It is not uncommon for some investors to purchase commercial buildings, which have tenant-mix disparities, with the sole purpose of fixing the imbalance, and so increasing the value of the investment.
Increase the space to let
“The total area of a commercial property in metres squared, compared with the total area available to rent out are very different,” says Breytenbach. This discrepancy can be excessive due to poor initial design or inefficient use of the rentable space, resulting in the overall area not being used to its full potential. It is worth reviewing the floor plan of your property to see if any space may be rendered tenant-worthy without too much upheaval.
Raising rents
This step must be carefully considered before implementation. It will immediately increase your cash flow, helping to improve property value, but if done impulsively, you run the risk of increasing vacancies as tenants find cheaper premises elsewhere. “Before considering this route,” says Breytenbach, “one must assess all the risks and implications that accompany it. If your property has higher-end tenants, the neighbourhood is popular, nearby rentals are higher or you have a waiting list of possible tenants, then by all means consider raising your rents.” The goal is to charge the best possible rent without causing tenants to leave or reducing your ability to attract new tenants.
How to decrease your expenses
Maintenance
Deferring preventative maintenance may in the short term seem to save money, but in the long term it does not. Unplanned repairs, due to the lack of maintenance, will cost more in the end. “Having a responsible and professional attitude to continued preventative maintenance will reduce crises, and also keep your tenants happy which will encourage them to renew their leases in the future,” says Breytenbach.
Reduce energy inefficiencies
As electricity becomes more expensive, it will improve your property image if it is recognised as an energy efficient premises. There are several ways in which this can be achieved. Consider installing energy efficient light bulbs throughout the building, and invest in modern heating and air conditioning systems, water-saving plumbing fixtures and tank-less hot water heaters. “These improvements may cost money at the time,” Breytenbach continues, “ but they will reduce the future running costs of your building. An energy efficient building will be more desirable to future buyers.”
Long term arrangements
Many services and suppliers, indispensable to keeping your commercial property operational, are on short term contracts. “It would be beneficial for you to negotiate longer term contracts at more favourable rates,” says Breytenbach. This would provide a more stable arrangement which most suppliers would accept with alacrity, giving them greater stability and security.
Improvements to the premises
Consider naming the property. This gives it a distinguishing factor and provides an individual character or identity which may greatly increase the value of your investment. Another possible action could be to sell the naming rights of the property to an existing or potential tenant, thus securing them as a long-term tenant.
“Ensuring that the premises and surrounding area are kept immaculately clean at all times is the cheapest and easiest way to boost the value of any commercial property,” says Breytenbach. “Another way to improve the visual appearance is to update the windows and doors. Outdated or inappropriately designed, these aspects may detract from your property and a change in this regard could bring about the right amount of improvement to enhance the property value, making it a desirable investment.”
