Owning commercial property gives you options. The whole purpose of this kind of property is to make money from it, and this can be achieved in a variety of ways, but which is the best option? Whether you own one building, multiple properties, or are part of an investment group, you’ll want a return in time, and that means you have to decide whether to use, sell, or rent commercial property to achieve it.
Ultimately, this comes down to the value of commercial property, and how you use it can change this valuation. Not the cost of the building, but how much it can earn you over a period of time. Knowing this can help you make the right decision.
What Are Commercial Properties Used For?
Commercial properties are used by businesses and organisations, and there are different rules governing their use, facilities, layouts, and even construction compared to residential properties. They tend to be a lot more expensive as a result, and, depending on the property type, can be used for:
When a commercial property is built or repurposed, it will have a specific purpose in mind, but in some cases it can be made to accommodate the needs of the person who buys it. This will alter the commercial property value, so should be factored into any decisions made about whether you sell commercial property, rent it, or use it.
You can find out more with our complete guide to commercial property.
The Value Of Commercial Property Depends On Its Use
While there are various factors to consider when determining the value of commercial property, such as size, location, access, and more, its use can dictate how much money you stand to make from when you rent commercial property to a business.
Monthly costs and lease terms can indicate how much you will earn from renting the commercial property. An office might have a much longer contract duration than a retail store or restaurant, for example. This stability can make it a good choice, while shorter contracts allow you to make sure you get the best return between tenants – however there’s a risk that the property could be empty more often.
Commercial Property Value Depends On What You Do With It
The use of a commercial property can change its value – to you, as the owner – but there’s more to it. Whether you decide to rent commercial property, sell it, or use it yourself will also change the value. The monetary value will be consistent, but your needs will dictate the decision you make.
What you stand to make by selling it, or by renting to businesses will differ, as will how long it takes to get the return you’re looking for. In that sense, you need to know what to expect from your commercial property and decide how long you want to be responsible for it.
How commercial property is valued
There are two main ways to work out the value of commercial property.
Commercial property value can be determined by the building itself. A range of factors go into deciding how much a property is worth, and is a useful guide to determining whether you should buy commercial property or sell one. This valuation is guided by factors such as:
- Intended use
- Nearby amenities.
The second option is to look at what you stand to gain if you rent commercial property. This is a complex formula that takes into account the rental value and compares it against the cost of the building (such as monthly mortgage payments, energy costs, and maintenance) to see what you need to at least break even. If the price you’d charge is higher than other options on the market, you’ll have a hard time getting a good return on your property.
Find out more about buying and selling commercial property.
What To Do With Your Commercial Property
Once you know the value of a commercial property, you can decide what to do with it. On top of the value, you should also consider the economy and property market. If demand is high on the property market, you can potentially sell for more, but the reverse is also true – if there are a lot of properties, it becomes harder to get the price you want.
The property market is hard to predict, but the economy can give you an indication of where things are heading, although this can change very quickly if the wrong decisions are made by those in charge.
In some cases, it’s better to hold on to the property until the market is more favourable to your needs.
Rent Commercial Property
Of the three options available to a property owner, choosing to rent commercial property you own to a business is the most common choice. This keeps the property under your control and allows you to earn income from it each month. Depending on the size of the building, you can even lease different parts or units to different businesses.
Doing this means you are still ultimately responsible for the property, so maintenance, repairs, health and safety issues, and more, all need your attention when they arise. This can use some of the money you make from it, but this is something to factor in when choosing this option.
Sell Commercial Property
If the property market is favourable, and you would rather move your investment to another property – or something else entirely – then it may be time to sell the commercial property. Finding a buyer can take time, but selling at the right moment can provide a lump sum return on the investment you made when you bought it.
There are plenty of reasons why you might consider this route. Perhaps your business requires investment in other areas, you’ve identified a new location to operate from, or there are signs the market will not be as stable in the future and this is the right time to make a change. Make sure you’re clear about why you’re selling and what you plan to do after the process is done.
Use Commercial Property
In some cases, you’ve bought a commercial property specifically for your business to use rather than lease out. Alternatively, you might have bought it to expand your portfolio but are considering where your own business should be located. If moving to another property, whether you own it or not, isn’t feasible, then moving into one you do own is worth thinking about.
As we mentioned previously, some buildings are made with a specific purpose in mind but changes can be made. If you require something specific, or the property can be altered in a cost-effective way, then using it can save on costs – but you will lose out on rental income, so that’s a factor to consider.
Know The Commercial Property Value Before Making A Decision
The best advice is to consider all options carefully before making a decision. The value of commercial property you own, both for selling and what you could stand to make by operating from it or leasing it to another business. Then you can factor that into your own plans and needs to determine what the best option is for your situation.
Impartial, expert advice can help you see the picture clearly, as well as any changes to the local property market. Our team at Williams Sillitoe can help with this, so contact us today and we’ll work with you to find the best solution.