Buying a commercial property can be a smart move for your business ¬– particularly if you’re looking to own and occupy. But there are a few key factors to consider before you sign on the dotted line.
Making the leap into commercial real estate may seem a bit daunting, especially if you intend to be the owner-occupier. However, owning the property you use for your business can be a smart move in the long term. But before you jump in and buy, there are a few key factors to consider. Matt Walsh, director of Blount Osborne Walsh, shares his top tips for buying commercial real estate.
1. Location and zoning
When considering commercial real estate, it is crucial to assess the proposed location of your business.
“Of paramount importance is to check the zoning status of the area you are considering and know the zone your particular business falls under,” Walsh says. “If it isn’t zoned for your kind of business, there is no point even looking there.
“You also want to look at where your customers are. Are they in the area you are considering – or are they willing to travel to you? And are your key personnel willing to travel to you as well? Do you require public transport? And are you close to other amenities that matter to you, such as banks and cafes?”
2. Current tenants
Is the property you are looking at currently leased to tenants? It is important to check any current lease agreements, not only for when it ends, but also for any future options available to the tenant. You are obliged to honour any existing leases and options, so you may not be able to move into the premises for some time. Of course, you can avoid this issue if you look at vacant properties or properties that are currently owner-occupied.
3. Size and fit-out
It’s important to consider how the size and layout will work for your business.
“Is the floor space large enough to cater to your needs? Does the layout allow for the sort of physical structure you require? Fitting out premises from scratch can add significantly to your costs, so consider those extra add-ons when you are looking around. Premises that are already fitted out may be a good choice, but only if it is suited to your style of business.”
Does the premises have enough parking for your customers and staff? It is important to not only consider what you need now, but what you may need as the business grows, at least during the next three to five years. On-site parking may not be necessary if sufficient street parking is available. If only metered parking is available, you will need to weigh up whether your customers and staff will be willing to pay to visit your premises.
5. Owners corporation
Previously known as body corporate, the owners corporation of a complex can make an enormous difference to its occupants.
“If you’re looking at a suite within a complex, ask about costs associated with the owners corporation, such as levies, and the frequency and amounts associated with building repairs.”
Walsh also advises that while it is important to talk to the owners corporation itself, it is equally important to talk to other occupants of the complex to learn about their experiences.
6. GST and stamp duty
It is important to factor in possible GST and stamp duty when calculating how much money you will need to raise. If the property is vacant when you purchase it, you will be required to pay GST on that property.
“Your state government will then charge you stamp duty on the purchase price plus the GST, so you need to be prepared for that and know where that money is coming from. Most buyers will be able to claim the GST back, but you need to have the funds in the first place.”
7. Commercial loan
It can pay to do your research and shop around for the best commercial loan for your circumstances. The costs you save – or the difference in conditions being offered – can be significant.
“Don’t assume your lending institution will match the terms and conditions of your home loan, if you have one. Loan-to-value ratios often differ between residential and commercial properties, and your lending institution may also charge higher interest on commercial loans.”
8. Energy consumption Energy consumption can vary significantly, and with energy costs becoming increasingly substantial, Walsh says it is worth checking how much energy a property typically consumes.
All office buildings over 2000 square metres are legally required to undertake an energy rating, so you are able to check how efficient it is. Walsh recommends seeking an independent consultant to provide advice on energy-saving measures for any new property.
“These measures may include using light timers, LED lighting, movement sensors or alternative power sources, and they can save you thousands every year.”
There is no substitute for on-the-ground research. Walsh suggests getting out and having a look at the properties that are on the market.
“What price are they going for and what do they have to offer? What have similar properties sold for recently? How does that compare with what you want and, if you already have a property in mind, have you found the best available option?”
It’s also useful to speak to a specialist commercial real estate agent that has sold properties in the area.
If you consider these points, you’ll be in a great position to purchase a commercial property from which to operate your business. With a bit of expertise and research, and perhaps the services of some experienced professionals, you can set yourself up for a smooth and successful transition into the commercial real estate market.
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