When it comes to identifying a secure investment, everyone seems to have a different opinion. While some feel safe with stocks, others prefer something more tangible. Real estate has had its ups and downs, but it remains a preferred vehicle for savvy investors. Commercial property is a favorite. But can you know for sure that your money will be safe?

Commercial real estate includes office buildings, malls, warehousing, factories, or restaurants. Places where people can conduct business – from a small unit on a main road to a multi-story building – all fall into this category. Commercial rentals are mainly calculated per square meter – which makes it far more lucrative than residential property.

Having a professional valuation done on a commercial property is a wise choice, as there are a number of factors to think about before investing.

A commercial property valuation usually assesses a property based on a three main areas:

  • income-generating capacity,
  • replacement value,
  • and sales comparison.

A detailed report will highlight areas that allow an investor to set a cap on what he is prepared to pay. A mistake at this point tends to be costly.

Rental income

It’s important to note that this does not only include the rental one receives. Other aspects would include lease terms – such as expiry dates, escalation, and the strength of the tenants. Property expenses are another major element, as are past sales, and property history.

Income, though, is the key basis influencing an investment property’s value. Once the net market rental of a property is known, it is capitalised at a rate of return that the market would pay for a property of its type. What would the risk be, and is it worth the investment return?

Location

This is often the single biggest factor affecting both residential and commercial property. If an area is deteriorating – as we have seen in many city centers – many businesses opt to find premises somewhere else. This has left empty buildings that are open to vandalism, and that fall into disrepair. A valuator will note what’s happening around you – because you can be sure that your future tenants will.

Market conditions

Almost all factors in a valuation on a commercial property are held up to the open market to compare. Why is this important? Well, simply put, you may have a great property, but the economy dictates that tenants can’t afford it – which makes it a bad investment. It helps to know what people are paying for rentals of similar properties – and what they offer in return. Do they find tenants with ease?

Among a host of other factors, commercial property valuations also need to consider:

  • Size and function
  • Services
  • Building quality and maintenance expenses
  • Views
  • Exposure (think retail)
  • Parking
  • Tenant mix
  • Risk and opportunity

At The Property Partnership we enjoy decades of experience in this very thing. Whether you are looking to buy – or sell – commercial property, give us a call. We can assist you in asking the right questions.

Call us today on 0860 999 440 or visit www.property-partnership.co.za for all your property valuation requirements.