When it comes to the performance of a commercial property today, the impact and sentiment of the local business community plus the greater global economy can detract from the income and capital growth for the property. This says that you have to be very careful regards planning property activity, lease strategy, and tenancy mix.To achieve this effectively, it is best to implement a business plan for the property asset. Whilst every property is unique and different, here are some of the main categories to consider and structure into the commercial property business plan:
In the initial instance, it pays to have a look at the property itself and the quality of improvements. Questions need to be asked as to whether the improvements in your property are sufficiently serviceable for the expectations of tenants in today’s property market. As part of this process, it may be necessary for you to look at comparable properties in the same area together with assessing their tenancy mix and rental levels.
Any physical matters of building performance or integrity of improvements should be assessed by qualified consultants. They would normally be engineers, architects, and quantity surveyors. From this group of experts you can obtain a clear understanding of property performance and longevity of the asset.
As part of the business plan you should look at the stability of income from the tenancy mix and the leases in the property today and those that are expected to change over the coming two years. Any new lease negotiations should be incorporated into the consideration of income. When you look at lease is, there are critical components to consider such as the exercise of option, the stability of income, the growth of income from the rent reviews, and the needs of expansion or contraction as they apply to each and every tenancy. It is best to meet with the tenants as part of this process and assessment.
The outgoings that apply to the premises have a direct flow through to the bottom line or net income. Your building should be compared to the others in the area when it comes to outgoings. Importantly your outgoings should be comparable to other buildings so that your attempts to leasing the vacant premises are not frustrated. When you assess the property outgoings, have a look at the larger categories of outgoings that could escalate in the immediate future. They would normally be council rates, energy, insurance, and repairs and maintenance.
Any items of capital nature should be removed from the net income cash flow. Capital expenditure items are normally handled separately to the day to day running costs for the property. This is because the taxation rules that apply to capital expenditure are distinctly different than those that apply to day to day running costs. When in doubt seek a good property experienced accountant or solicitor to help with this process.
These are some other main items that apply to the business planning process for a commercial property today. They can be modified and other issues can apply depending on the property type and location. It should also be said that retail property will have a far more complex level of business planning and performance. This is due to a critical need of tenant mix optimisation and the underpinning of sales and turnover for each and every tenancy.