LJH Commercial

LJ HOOKER COMMERCIAL MACARTHUR 07 How do you drive capital growth in commercial property? Commercial property is considered an illiquid asset due to its inability to be converted easily into cash. Due to this status, many commercial properties hold longer leases than residential properties. In order to coordinate the most successful outcome for an illiquid property asset, resale generally relies on the landlord’s ability to establish a stronger and longer rental return. Commercial property leases are different to those in residential real estate. A residential tenant, for example, may sign a 12-month lease on an apartment. The tenant may choose to move around and not be tied to one address for too long. However, commercial tenants are motivated to lessen the business disruption of moving and therefore seek leases that span anywhere from 3 to 10 years, with options to extend built into the agreement. At sale time, an investor is effectively purchasing the asset as well as the existing lease terms. As a result, commercial property markets don’t rise or fall in price as quickly as residential assets. While commercial property yield is the main motivator for landlords, especially in a low-interest rate environment, capital growth shouldn’t be entirely dismissed. There are numerous ways to improve the worth of your commercial property asset. Lease negotiations The end of a lease offers the best opportunity for a commercial property owner to secure the long-term success of their asset. By choosing to negotiate a longer lease, your asset will receive more interest from the market when you want to sell. In some cases, a renewing tenant or new tenant may expect a longer lease commitment to come with an incentive, such as a rent-free period or a contribution to a fit-out to be built into the lease. It’s important that the lease negotiations you settle on don’t compromise the worth of your asset, and are managed appropriately to help you secure higher returns, negotiations should be carried out on your behalf by a commercial property manager. You can leverage their knowledge of current market conditions to assist in increasing the worth of your asset, protecting your interests in any new agreement. Improvements If handled correctly, material additions to your asset, such as new carpets, landscaping and carparking should not be considered a loss. In fact, they’re one of the biggest elements of any investment. Renovation can create profit, as improved internal or external facilities can help attract a higher return from tenants who appreciate or require high-standard amenities. Having a quality tenant committed to an asset can also increase the interest in a property at sale time.