Commercial property can seem quite alien to traditional, residential property investors. And rightfully so, as most of what comprises the value is different to residential. But how do you increase the value of commercial property?
Following on from my purchase of an industrial estate back in April as part of an acquisition, I thought I’d walk you through some of the steps I’m taking to improve the value of the site…
Commercial property is often seen as a long-term investment, usually with year-on-year growth in both rental and capital appreciation. But what if you wanted to increase the value quickly? I’ll run over some of the best ways, but certainly not exhaustive list, of things you can do to lift the value.
The first, and certainly most superficial way, is to tidy up believe it or not. Things like securing and maintaining the perimeter of the site, stick up some industrial fencing. Ensure the outer of the property is neat, clean and presentable. Any green areas landscaped and maintained regularly. Have some pride in your industrial unit or site!
If the property is office or high street, get some sound proof windows in, that sort of thing. Anything that makes it a nicer place to work. Demonstrate to valuers and/or buyers that you have invested in the site and have some TLC.
Increase the size
Floor space is everything. What is the square foot area of the property? Can you extend? That way, you can either introduce more tenants or increase the rent of incumbents. Maximise the usability of the space – work with your surveyor, preferably a local one, who can help guide you on adding those gems that will increase the value to both tenants and valuers alike. Learn how you can finance these expansions using your business.
Increase the rent
Definitely the quickest and most cost-effective way to uplift the value of a commercial property is to increase the rent. As commercial property is valued on a multiple of the gross rental income, doing this will add immediate and demonstrable value to your site. It also doesn’t require any heavy work, which is a bonus. But remember, do some local market research as you don’t want to go through the ceiling of the rental demand in the area if you aren’t increasing the size or doing any heavy work.
A second to this would be formal leases and tenant quality. Both are incredibly important when it comes to valuations. Even just a lease being in place ups the value even if the rent is the same. Similarly, the length of the lease will increase the rent (the longer the better, obviously) but this can become a sticky wicket, because if a lease is too long, it might put some buyers off who have other plans. Check the provisions – imagine what would make it attractive to you if you were buying the property yourself.
Get a new business rates evaluation
As those of you that own and run your own businesses will know, business rates can be a killer. Speak to your local authority and ask them to visit the property to re-evaluate the business rates. The last set may have been done at a time when the market was in a growth phase, meaning they are much higher than they might be now. Take a view.
All of these things will help increase the value of a commercial property or site, especially when done together in combination.
This article was written in May 2022. I am not an accountant or tax professional. You should always discuss your personal circumstances with an accredited tax professional and financial adviser, as legislation can change.