Renovating A Commercial Property

When it comes to renovating a commercial property, flexibility and bottom line are important criteria to consider. Investors also need to ensure they get a return on their investment when they renovate as each commercial space is precious and has to bring value. Planning your renovation to meet these goals will enable commercial property investors and owner-occupiers to mitigate economic uncertainties by implementing real estate strategies that are aligned with their business plans.

Most institutional investors will be more than willing to invest in renovating their income producing properties, as it will greatly enhance their capital values and rental yields. In the case where you are acquiring a commercial property from the secondary market, renovating the property to suit your needs not only allows you to tailor the space to your business, but also instantly builds equity. Think about it - where others may see a run-down property, your business may be able to occupy a prime piece of commercial real estate for a fraction of the cost. Therefore, it makes senses to do some renovation work as such properties usually come bare and are in dire need of renovation work. Doing so will greatly enhance the value of your property in order to attract tenants and keep rentals at a healthy level. Decrepit looking buildings do not make a good impression, especially for owner-occupiers where branding and image is important. In addition, investors will be in no bargaining position to up their rental values during an economic upturn.

Most institutional investors and owner-occupiers will engage the service of real estate consultancy firms such as Jones Lang LaSalle, CBRE and Savills to ensure that the renovated commercial space is flexible enough to anticipate any changes in the future and absorb shocks in the market. These property firms will also assist with the asset management of the commercial property in order to minimise the business interruption of the construction and oversee the renovation to ensure that various aspects of the project would, yield a return-on-investment after the renovation is completed. Such measures may include renovation works to consolidate commercial space to drive profitability.

For example, applying “sale-leasebacks” strategies can release precious capital to an investors’ balance sheet that is tied up in corporate assets, such as the said commercial property. In the instance where a company occupies less than the entire premises it owns, then the sale and then leaseback of only the portion it wants to use, lowers overall rental cost without the need to move offices.

Another strategy is “desk-sharing” or “hot-desking”. This is especially suited for tenants with staff that are always on the move, like those in insurance companies and real estate agencies. This will release additional space that can be leased out to drive profitability.

Commercial property investment can be extremely volatile as it is subject to the global economic outlook. However, by using savvy investment strategies like renovation, you can bring value and dividends to your property in the long-term.
For example, should you decide to sell your property down the road, the time and money spent on renovations should provide an exponential increase in equity once the property no longer suits you and you decide to sell.