Top 5 Identifiers for a Great Office Space Investment
Understanding the commercial office space market is the first step towards creating a great CRE portfolio. There are a few points to keep in mind when looking at office spaces for investment.
Investing in commercial real estate has its own share of benefits. No matter the kind of asset you are looking at, commercial real estate offers you a stability and growth that is unrivalled among contemporary investment options. Commercial real estate will always be a growing avenue, primarily because there are always businesses that are coming up and their requirements also keep increasing as time goes by. Be it the need for support in supply and logistics via warehouses, increasing production via assembly lines, or expanding the corporate presence via offices, the need for more space is always there in the corporate realm, much more than in the residential one. With the kind of long leases and lock-in periods signed by tenants, it also becomes one of the most reliable sources of investments that offer regular returns. From among the different kinds of assets available, commercial office spaces are the ones that kind of suffered during the peak of the COVID-19 pandemic. However, they have also started bouncing back to their prime at a great pace. With the demand for commercial office space rising again, there are a few things that you should keep an eye out for, as an investor.
It is not a rule of thumb that an office space available anywhere would always be a great investment opportunity. Based on where the asset is, how the demand of the market is and the kind of rents in the region, a commercial office pace investment could make or break your portfolio. Keeping this in mind, let us take a look at the top 5 points that you should consider when looking for an investment opportunity.
Age of the Asset
Old is gold, but that is not necessarily true in this case. Older office buildings are harder to maintain and can rack up a pretty high renovation and upkeep cost. Those can eat into your returns. Exiting from a CRE investment is still harder, so you wouldn’t want to lock your funds with a property that demands maintenance and upkeep every now and then. Older assets also cannot accommodate many modern amenities and will not be as lucrative for clients. Even if a lease is long and the rents are being paid on time, ensuring regular returns, there is no guarantee that the next lease might be renewed at a better rate or you might find a new tenant as easily.
Where an office space is available matters a lot based on the business of the tenant. While headquarters or corporate offices prefer Central Business Districts of cities, there can also be other locations that they can choose, based on other businesses in the area. Generally, MNCs and larger corporations choose newer facilities and buildings that can scale effectively. In addition, such areas might be populated with other larger commercial entities like malls, hotels, restaurants, and stores.
Larger builders generally have access to better plans, designs and professionals who contribute in creating some of the most engaging workplaces, be it for a single business or made as a co-working space. Taking a note of who has undertaken the project of constructing and designing the building can help you know which kinds of probable tenants you would be expecting in the long run.
This factor is associated with the builder as well as the location of the asset. Designer spaces generally come with the influence of the nearby buildings and demography. You would hardly find minimalist or industrial spaces in a locality populated with traditional designs. There can be exceptions, but that does not make it the rule. Aesthetics influence the kind of tenants that would be taking up the space as well.
Rents and Leases
The market’s average going rent, vacancy rate and length of the lease periods will mostly be the standard for any new office space that comes up. Expecting any major appreciation opposed to the market sentiment is not prudent. You would be better off understanding the market beforehand if you are looking at assets that are opening up in the region for investment. It is also noteworthy that any major connectivity route being added to any region will help boost appreciation in a very short period of time.
Keeping these above pointers in mind will help you look for better office space investment opportunities and shortlist your options more effectively. If you are looking for Grade A assets in the office space for investment, opting for fractional ownership via Strata will help you get started on building your CRE portfolio in a hassle free manner.