7 ways to boost your commercial property’s value

By Zarah Mae Torrazo 04 February 2022 | 1 minute read

If you own commercial real estate or you are planning to invest in one, here are seven ways to boost its value. 

7 ways to boost your commercial property’s value

If you are thinking about buying commercial real estate (or you already have diversified your portfolio), it’s important to know that there are things that you can do to improve and boost the value of your investment. 

There are many ways in which investors can do this, which can range from making structural and cosmetic changes to changing how your space is divided. 

While the prospect sounds exciting, you should also know that this is no quick or easy task. 

When adding value to your commercial property, it’s important to do your research to properly identify the areas of the property where it can be strategically added. To be more specific, you should focus on how you can increase your cash flow and lower your expenses, which, in turn, could help increase your commercial property’s value. 

Here are potential ways in which value can be added to a commercial property that can boost its value. 

 1. Increase tenants’ rent

This strategy seems like a no-brainer, but it is the easiest and fastest way for commercial property owners to increase their cash flow. 

Hiking the monthly rent of your tenants or lessees can have a significant impact on the overall value of your commercial property. 

To start, it’s recommended to do your due diligence and do some research on the local market where your commercial building or space is located. This will ensure that if you decide to increase rents, you are asking for a fair value market. 

Be mindful that you don’t price yourself out of the market – this is a fast lane to losing tenants (and, therefore, money). But if you still have some room to grow and can increase the asking price for your commercial space, the overall value of your property will also increase accordingly. 

Timing is also important when it comes to increasing your rent. You can choose to increase below market rents when leases expire. This allows you to increase the rent over time for existing tenants. If you have a vacancy, you can also charge at a new increased rate.  

If you have existing tenants, you can also offer to move them into a larger space. For example, if you own office buildings and you see that your tenant is expanding their workforce, you can try to talk or negotiate them into leasing a bigger space to better accommodate their employees. 

2. Minimise your operating expenses

Another strategy to increase the overall value of your commercial property is to lower your expenses. 

First, collect statements of all of your historical operating expenses. Review the areas where you could cut back or consolidate (or even cut out) your spending. 

Check in with your property manager to go over the details and to help you better identify where you can lower expenses. It’s also a good idea to consult with a local and experienced real estate manager to compare with other similar commercial investment properties in the area. If some costs are higher than the average, explore the ways to decrease them.

It’s important to be creative. The solution could be as simple as switching to more energy-conservative lightbulbs or installing solar panels to cut down on your utility expenses. 

If your air conditioning unit is costing you a lot of money because they are outdated, crunch the numbers and see if buying a newer and more energy-efficient one will end up costing you less money in the long run. 

Additionally, remember to competitively bid on all of your contracts, such as your insurance coverage, projects done by contractors etc. 

3. Make strategic improvements and renovations

The property building itself should be up to date to ensure it can compete with its surrounding buildings in quality and be representative of the area’s aesthetic and style. For office spaces, shopping centres and industrial warehouses, cosmetic improvements can effectively spruce up your property. 

Aesthetic improvements such as a fresh coat of paint on a dated metal warehouse, new decor elements in the common areas (e.g. lounge of a large office building), or new flooring can go a long way in making your property more attractive. These types of upgrades can also allow you to increase the amount of rent you charge. 

The next step is ensuring the building is structurally sound. Structural improvements or major renovations, such as refinishing your retail centre’s facade or bringing a dated space in line with modern amenities and finishes, can be the deciding factor in signing a new lessee or retaining long-term tenants.

Remember that the keyword here is “strategic” – it’s important to make smart renovations and upgrades that will deliver a smart return on your real estate investment.

This means taking a step back and taking a hard look at your space to see what your tenants may want or what may attract prospective ones while also being careful that you don’t overcapitalise on renovations and upgrades. 

If you are unsure of what works you can do, don’t jump the gun and instead bring in an experienced and neutral third party to assess the space for you. 

4. Reconfigure the commercial property’s space  

Adding or dividing up space can also help increase a commercial property’s value.

Consider adding spaces such as parking or storage, which can easily increase value as both are always in high demand. Finishing unfinished spaces or building additions could also be a way to achieve the same result.  

5. Change up the purpose of the building

Another way to drastically increase the value of your property is to consider repurposing the space or using the building for a purpose other than what it was originally intended. 

For example, you can change an industrial space into retail use or transform a regular office space into a medical office space. 

However, it’s important to understand that across Australia, all land has a designated zone that dictates how the land within that certain area can be used. The four categories are mainly: residential, commercial, industrial and agricultural. Within these, there are often subcategories, such as those defining what type of commercial and industrial business can be carried out.

If you are buying commercial property or you are a property owner planning to change or modify a commercial real estate’s use, make sure to contact the local council to see what you are authorised to do and what plans and permits are needed.  

6. Add amenities and explore other ways to produce additional income  

You can also consider adding amenities to the property to make it more appealing and valuable. Value enhancing amenities can include the following: 

  • concierge services
  • fitness centre
  • conference room/function hall
  • a business centre  
  • a coffee bar

Property owners can also explore other ways to produce income, such as: 

  • renting your roof space 
  • adding a laundry room and coin-operated machines 
  • renting your common areas for exhibits, shows, events etc. 

7. Avoid vacancies and maximise your marketing 

Even if you have updated your commercial property with all the latest features and your space is offered at a fair market value rate, your space will automatically be worthless if it has vacancies. After all, one of the easiest ways to lose money in this type of real estate investing is through vacancies and lost tenants. 

Finding tenants and avoiding vacancies are likely the most obvious ways to add value to your investment. This means that finding reliable and long-term tenants is key to becoming a successful commercial real estate owner.

Utilise smart and cost-efficient marketing strategies to help reach your target market and improve your bottom line. To help you get started, read our article on how to find tenants for your commercial property. 

For more insights and expert advice on commercial property investing, make sure to check out our top-rated Rethink Investing’s Commercial Investment Masterclass podcast series. 

 

 

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Property

Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.

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7 ways to boost your commercial property’s value
7 ways to boost your commercial property’s value
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