Buying A Commercial Property

Before committing to purchase your first slice of commercial real estate, you need to look into your long-term plan to ensure you get the best returns on your investment. This means determining the kind of buyer you are. Typically, there are three different types of buyers of a commercial property: institutional investors, owner-occupiers and individual investors. Depending on the type of buyer you are, your long-term goals will be different. For example, institutional investors will look for income producing properties, owner-occupiers will buy it for their own use and investment while an individual investor will buy very small commercial units for either rental income or for their own use. As such, the selection criteria for a commercial property is highly dependent on what kind of buyer you are.

Institutional investors
Institutional investors refer to organisations which pool large sums of money and invest those sums in a commercial property. They include banks, insurance companies, retirement or pension funds, hedge funds and mutual funds. The goal of institutional investors is to invest in a property that produces rental income. Institutional investors look at expected capital appreciation and rental yields. Location is not of importance. Typically, institutional investors will use an agent in order to secure a property. For instance, as a buyer, they will engage an agent to look out for good commercial property deals that are available on the global market and then inject funds in the property.

Owner-occupiers
Owner-occupiers refer to business owners who invest in a commercial property for their own use and also to get rental returns. Their goal is to be close to their suppliers and business partners. Corporate branding is also very important for them. Therefore, the location and the type of building play an important role when selecting a commercial property. Owner-occupiers usually assign an architect to plan their buildings from scratch or buy direct from a developer.

As owner-occupiers, you need to ask yourself if you will also be leasing out your property. Some of the key points that owner-occupiers need to look at before buying a commercial property include the location, a good transport network, nearby amenities, human traffic, car parking facilities, expected capital appreciation and rental yields.

Of utmost importance is location as a more educated workforce tends to place a heavy emphasis on where their workplace will be located before deciding whether or not to take up their job offers. Having a commercial property in a good location, for example the Central Business District (CBD), the New Downtown or Orchard Road, will have a two-fold effect in your employees and business associates – it improves the overall impression of your business and is good for your corporate branding. These are intangible benefits that although is hard to measure, affects your business in the long run.

The location will also determine if there will be demand for your commercial space that you intend to lease them out. The increased demand will naturally mean your property can command a premium in terms of rental and that your property’s capital value will tend to appreciate, assuming the economy is doing well. However, you must also be prepared to take a hit during an economic downturn. This means you need to be a good and understanding landlord by reducing rental costs and exercising flexibility in order to retain tenants.

Increasingly, owner-occupiers are looking into eco-friendly buildings as part of their investment decision due to their corporate social responsibility programme and branding. You may consider such building if such CRM initiatives are high on your corporate agenda but this will require deeper pockets. Over the long run, however, you will save a lot on energy bills and improve the overall productivity of your employees.

Individual investors
Individual investors refer to one person who typically buys a small unit such as a shophouse for their own use or for rental yields. They usually buy direct from developers or previous owners. For an individual investor, location is of utmost importance. Some of the key points that an individual investor needs to look at before buying a commercial property include the location, a good transport network, nearby amenities, human traffic, car parking facilities, expected capital appreciation and rental yields. The location has to be attractive enough for employees to want to commute to their workplace.