If you’re looking to invest in commercial real estate, now is as good a time as any. The major cities in the world are now reporting a net loss in commercial building rents and leases. This is because due to the lockdown, many businesses have had to leave. This leaves a massive gap in the market and prices are going to plummet in the next year or so. Commercial high-rise buildings especially are going to need buyers as office space is going through a desperate phase. Coworking spaces are decreasing and more business owners want their own working space. But before you get out your checkbook, there are certain things you need to complete. Various cautions need to be mitigated so you can make a long-term investment.
Know your customer’s needs
You could buy office space in any town or city, but the return on investment would greatly depend on the location. This is why you need to study consumer demand trends before making a decision. The commercial buildings in places like London, New York and Paris are always fluctuating in price due to new constructions and investors buying and selling. You should study reports from various journals and economic publications about where the demand is coming from. This way, you will learn how much cash is behind or lacking in certain buildings. The giant property management companies regularly publish reports which you should take a look at to gauge how much demand there is. When you realize that certain cities and buildings have a lackluster demand, this is when you should strike.
Quality and longevity
Contacting the real estate agent or the broker is the next step in the enquiry phase. They will use their contacts in the industry to answer your questions. This is what you should be asking them.
- What kind of materials were used in the construction? This is so you know how long it will be between general structural maintenance.
- What is the internal infrastructure like? The wiring, lighting, and piping, will all be under tight regulations but you need to know they will last and even more importantly, be able to be upgraded as the decades go by.
- Does the design hold up to future needs? Is there enough space in the building for more employees if a business chooses to move in? Can the floor space be adapted to the needs, i.e. removable walls?
- What would it take to shift the philosophy of use? Can an office building be converted to a tenement building? Can a condo building be turned into an office? Maybe this could be done floor by floor?
Inspecting the exterior
High-rise buildings get punished by the elements regularly. This is why it’s so critical for your investment opportunities, to be given a full inspection report. You should hire Drone Services that can inspect cladding and see the quality of the exterior. They use expert pilots to fly as close as possible to high-rise buildings, taking a closer look at the ceiling, confined spaces such as air vents and HVAC units, and the protective materials on the sides. All may be well internally, but if the exterior has eroded or is not resisting the rain and wind, it could leak to leaks or worse. Many real estate companies won’t give you up-to-date reports on the exterior and simply rely on an older report many years ago. Don’t be a yes-man, do your own research and inspection.
The return on investment
Buying a commercial high-rise is quite the handover of money. It ranges in the tens of millions to hundreds of millions of dollars, so you need to know what your ROI will look like. Well, that’s a complex hunt to initiate. It all depends on who is going to invest in it themselves. Research into the quality of businesses that are in the area. It’s no coincidence that the top companies in Manhattan, are located in the same buildings, with offices and headquarters right next to each other.
Local economic reports will shine a light on who is interested in the area. It’s quite common for industries to stick together. If you can find out what those industries are, you will know who might be a potential customer to rent or lease floors from the building you intend to purchase. Of course, hiring an investment firm to do this research for you, is the aptest way of doing it.
It’s a massive purchase so you better get it right. Perform your own inspections both for the interior and exterior of the building. High-rise commercial assets are ripe for the picking since the lockdown is being lifted.
