Month: July 2023

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Five ways to maximise returns on a commercial property sale

The mechanics of commercial property investment can be tinkered to maximise financial returns.

The Australian commercial property market has been experiencing steady progress over the years, fuelled by consistent economic growth and a booming real estate sector.

In this dynamic landscape, property owners are constantly seeking strategic ways to maximise their returns on investment. To remain competitive and capitalise on such opportunities, it is crucial to evaluate various methods that can increase property rental values, lease lengths, improve property conditions, expand net lettable areas, and employ sustainable energy systems like solar panels.

Here are five key strategies that can significantly benefit investment strategies in commercial property in Australia.

1. Increase rental values

One of the primary goals of commercial property investors is to generate a consistent and growing rental income stream.

Achieving higher rental values can pave the way towards greater returns and a stronger financial footing.

To achieve this, property owners need to focus on offering improved facilities, state-of-the-art technologies, and modern architecture that cater to various tenants’ demands.

Providing amenities like high-speed internet, advanced security systems and convenient shared spaces can attract high-quality tenants who are willing to pay premium rates for such services.

Moreover, conducting regular market assessments and staying informed about ongoing rental trends can allow owners to adjust their prices accordingly, ensuring optimal growth in rental revenues.

2. Increase length of leases

Ensuring long-term tenancy is another contributing factor to maximising sale price or valuations in general.

Longer leases offer security and predictability in rental income.

To encourage tenants to sign extended leases, property owners can offer competitive packages such as flexible rent increases, rent-free periods, or fit-out contributions.

Another effective tactic is to foster strong relationships with tenants and maintain open communication channels to address issues promptly.

By demonstrating trustworthiness and maintaining a positive environment, landlords can build lasting ties with their tenants and ensure a stable income for an extended period.

3. Renovate properties

Renovating commercial properties can significantly increase their value and attract a higher calibre of tenants.

Undertaking upgrades such as redesigning office spaces with open-plan layouts, incorporating energy-efficient lighting, and installing modern HVAC systems can result in considerable improvements in overall property performance.

Renovations aimed at enhancing accessibility and adhering to building standards and regulations can foster a sense of safety and inclusivity for prospective tenants.

By staying up to date with current design trends and renovating properties to meet tenants’ expectations, landlords can increase their property’s potential and boost valuations or the sale price.

4. Increase net lettable area

To optimise earnings, commercial property owners should also look into expanding their property’s net lettable area (NLA).

Maximising NLA can contribute to a higher total rental value and accommodate a broader range of tenants.

Potential methods of expanding the NLA include reconfiguring floor plans to allow for better space utilisation, incorporating mezzanine floors, and exploring vertical expansion possibilities within relevant building codes and regulations.

Property owners might also consider conducting feasibility studies to identify the most lucrative options for increasing rental spaces when planning property renovations or upgrades.

5. Add value with solar panels

The implementation of sustainable energy solutions, such as solar panels, has become increasingly essential in the commercial property market.

By installing solar panels, property owners can lower a building’s carbon footprint while offering tenants access to cost-effective and environmentally friendly energy sources. Consequently, this could result in increased property values and attract more sustainability-conscious tenants.

The integration of solar technology can help property owners secure government incentives or tax benefits, enhancing overall profitability.

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Why home values are still skyrocketing despite rate rises

“Supply is really the number one factor in the residential property market right now,” insists REIA president Hayden Groves, who believes that unless more housing becomes available, rising interest rates won’t reduce national home values.

Speaking on a recent episode of The Smart Property Investment Show, the man at the helm of the Real Estate Institute of Australia (REIA) said the national supply crunch is undoing the negative implications of the Reserve Bank of Australia’s (RBA) cash rate hiking cycle.

Despite the housing market spending the majority of 2022’s back half within an aggressive downswing, which saw prices across the board drop 5.3 per cent last year, the largest drop off since 2008’s global financial crisis, recent data from research centre CoreLogic points to a strengthened market recovery over recent months.

The firm’s Home Value Index (HVI) rose 0.6 per cent in April, its first increase in 10 months, while May saw national home values jump 1.2 per cent, the highest rise since November 2021.

Recently rising prices have occurred against the backdrop of the RBA’s resumption of its rate hiking cycle following the brief reprieve an April cash rate pause offered consumers. And while Mr Groves admitted the latest shock rate rise delivered in June has “taken the wind out of the sails” in the Australian property market, he explained that “we haven’t really seen a significant impact” of the cash rate rises, aside from in Tasmanian capital Hobart.

The primary reason the Australian property market has remained relatively unscathed by persistently rising rates is the strenuous lack of stock the Australian housing market.

“When you have a market of constrained supply, the RBA can do what it likes with interest rates,” he said, adding “it doesn’t seem to impact too significantly on people’s desire to have and need a roof over their head”.

This is evidenced by the recent momentum of the national auction market, with clearance rates having remained above 70 per cent for nearly two months, as opposed to 12 months ago when, following the initial turbulence birthed by the first few cash rate increases of this current cycle, clearance rates strained to rise past 50 per cent.

In Mr Groves’ eyes, such strong results highlight an “appetite for buyers at the moment to secure their homes”.

He noted it is not just owner-occupiers driving this increased demand, with investor interest increasing over recent months given they “generally only ever buy in a rising market or where they feel as if there is some upside”.

He draws the point consistently back to supply, especially given the current climate where, outside of Hobart and Canberra, a chronic undersupply of properties exists in Australia’s major cities, further driving prices up.

“Until that [supply] really starts to change and we start to see a bit more stock come on, this low-supply environment that we’re in will probably continue to put upward pressure on prices despite the RBA doing its best to curb our enthusiasm,” he said.

https://youtube.com/watch?v=FFhffYByZY8%3Fcontrols%3D0

Moving forward, the REIA president expects the national property market to begin evening out, especially with 600,000 extra migrants forecast to arrive on Australian shores by the end of next year, many of whom are expected to settle in Australia’s more affordable capital cities, such as Perth.

Casting a gaze away from the economic drivers of Australian property, Mr Groves declared “there’s a lot of upside” in the market at the moment, largely driven by “this inability to get more supply into the market quickly”.

“[This] is inevitably going to continue to have upward pressure on price for the foreseeable future. I can’t see it going away,” he concluded.