'Even though the building may be fully air-conditioned, it may lack sufficient capacity to meet the requirements of modern-day tenants."
Eight things commercial property investors should consider before buying: Chris Lang
Leaving aside things like projected cashflows, depreciation and taxation issues for moment, let's look at some of the key factors that determine whether or not the property itself will stack up.
What follows is basically a checklist of the various aspects to investigate when you start looking to purchase a commercial investment property.
And, while this is not intended to be an exhaustive list, it should give you some insight into the depth of analysis you'll need to undertake as part of your due diligence process.
1. Initial appeal
Here you are making a judgement on how the appearance of your building compares with others on offer — both visually now and whether it will quickly become outdated over time.
2. Financial aspects
You'll find there is one very useful yardstick for comparison. And that is the cost of a commercial property per square metre of its net lettable area.
In other words, you need to establish whether the cost of the building (per square metre) you are considering is greater than the cost (per square metre) of other similar buildings sold nearby. And this will quickly tell you whether your building has a more efficient layout or is simply overpriced.
Furthermore, you need to consider whether this building can maintain its current rental level or whether it would need to be upgraded in the near future.
3. Ongoing management
This is a somewhat mundane topic, but you do need to look at just how accessible the plant and equipment is. And you must determine whether enough space has been allocated for it, either on the roof or within the plant room itself.
Also, during construction, were low-maintenance materials used? And have energy-efficient measures being used with power and lighting? You will probably need to seek some professional help, to determine whether this has been properly addressed.
4. Future flexibility
Here you're looking at the actual floor layouts to make sure they are suitable for both whole-floor tenants as well as later subdivision, to accommodate multiple tenants.
Quite apart from these layout issues, how adaptable would the building be for future technological changes down the track?
5. Standard of finish and design
Depending upon the age of your building, it should be somewhat creative in its architectural and engineering design.
But just using trendy materials is of little use if they end up proving unsuitable for the purpose intended. In other words, everything needs to have a functional use.
6. Quality of services
Even though the building may be fully air-conditioned, it may lack sufficient capacity to meet the requirements of modern-day tenants.
And so, part of your due diligence needs to ensure this and other items like the lighting systems, lift services, fire protection and security services are totally adequate.
Under current legislation, all commercial buildings need to provide for disabled access. This can be quite costly to achieve if it has not already been provided.
7. On-site amenities
Will your tenants be able to gain after-hours access? And is there sufficient parking for visitors?
You may consider the use to be minor issues — but they can affect whether you achieve more (or less) than your competition.
8. Environmental issues
These relate (in part) to how well the overall use of the site was planned and how the building itself has been orientated.
But equally, you need to consider how efficiently things like your lighting, heating and cooling will operate — both from an energy consumption point of view as well as the overall running costs involved.
Bottom line: I hope this summary has given you a better insight into the due diligence process I embark upon when assisting you acquire an investment property.Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.