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 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 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 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.