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Commercial property white elephants

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  • Commercial property white elephants

    Hi Pters,

    It wasn't that long ago, investors were ditching residential in favour of commercial property. The question is - how's that working for you?

    See this FT article (it's not behind the paywall) -

    A new era of remote work and rising interest rates has changed the equation for some developers


    Commercial investors only buy if they can repurpose the building. Some investors are just handing their commercial properties back to lenders.

    Back home, many residential investors jumped into commercial as soon as Labour targeted residential - I know one investor who bought some retail stores - and it wasn't his first dabble, but it wasn't long before he worked out he was on a highway to nowhere and sold them.

    More entrepreneurial investors are saying there are opportunities in commercial if you change your approach to how they operate. In other words 'disruption'.

    For example, forget fixed leases and instead rent the space to whoever wants it for as long as they need it. So pop-up stores, short-term leases on office space etc.

    The only issue here is this approach will require a lot more hands-on time to manage the comings and goings.

    It does make you wonder what will happen to large highrise commercial buildings - especially those that are deteriorating. Some may make it to apartments - most will probably be razed to the ground. Interesting times ahead!

    cheers,

    Donna



    Offices in the future could work in a similar way to gas stations, Mark Dixon, CEO of flexible office company IWG, told CNBC.
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  • #2
    Sold a residential soon after the rules changed and repurposed the equity to buy, with new loans, lock up garages. A small but fruitful venture into commercial. The loan was residential and is now commercial. Roughly the same return with less hassle.
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    • #3
      ^^ a good move and storage units too - consumerism is alive and well. There’s never enough storage esp in apartments and townhouses which developers are building in the hundreds and a lot of folk don’t know when to get rid of stuff.

      Maybe commercial buildings are repurposed to lock up and storage units.

      Your lock up garages would need good security systems.

      cheers

      Donna ????





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      • #4
        Another good article from WSJ (not behind paywall). https://www.wsj.com/articles/how-to-...-rent-6ff4f9ec

        Landlords become salespeople offering perks to attract tenants. Rents are rising at 1% - so not keeping up with inflation. Rent-free periods getting longer - up to 33% of the lease term.

        Imagine giving your residential tenants nearly 3 years rent-free on a 10-year lease!

        Cheers,

        Donna
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        • #5
          Originally posted by donna View Post
          Hi Pters,

          It wasn't that long ago, investors were ditching residential in favour of commercial property. The question is - how's that working for you?

          I know one investor who bought some retail stores - and it wasn't his first dabble, but it wasn't long before he worked out he was on a highway to nowhere and sold them.
          Hi Donna, when I decided to buy an investment property I went directly for a small industrial one so have never experienced residential. it's been great for me with a good return and minimal hassle. Why did the above investor have trouble with his retail units? Where they hard to tenant?

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          • #6
            Yield was not good enough and tenant’s business didn’t really recover post pandemic. Industrial sector still okay though just small retail and offices not so good - a global challenge for commercial landlords.

            cheers

            Donna

            Office building owners know they need to be flexible, responsive, and proactive in addressing the changing needs of tenants in the post-pandemic environment.
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            • #7
              I sold most of my residential 3-4 years ago, I now only have 3 left. Started buying commercial properties about 5 years ago and now have 15 commercial tenants spread across 7 commercial properties (retail and offices). I have one commercial property empty and have it up for sale. I kept the 3 residential properties to keep borrowing costs down so that I did not get charged commercial rates. While capitol growth has not been as evident on my commercial properties I am getting really good cash flow. My vacancy rates have been low. Covid was a little challenging but we are well over that now. As soon as I see recovery in the residential market (thinking about in the next 2-5 years) I will be selling my remaining 3 residential properties and paying down debt on commercials. I am now after a less stressful life and commercial gives me this as tenants look after the properties and have a mutual goal of success with the landlord.

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              • #8
                ^^ Location will always attract customers. Our little village is doing better than ever - due to remote workers - not sure cities winning though - lots of vacant shops.

                cheers

                Donna

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                • #9
                  Originally posted by donna View Post
                  ^^ Location will always attract customers. Our little village is doing better than ever - due to remote workers - not sure cities winning though - lots of vacant shops.

                  cheers

                  Donna
                  How many buildings do you have in your village Donna?
                  is it a industrial park or shopping center or office park?

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                  • #10
                    I should do a count - it is Raumati Village. Unfortunately, since I last wrote - I've found out one Landlord has been buying up buildings in the village - and now he wants to raze one to the ground for a new 4 Square - (they already own one - and it's on a corner, so it gets good foot traffic). Their move will displace a few businesses, including a couple of small professional firms using offices on the top floor and boutique retail stores on the ground floor - with good foot traffic.

                    It's a negative move for the village - due to the location of the new 4 Square next to a school, and it gets congested before and after school - esp. foot traffic. The new 4 Square will have car parking in front (where the current building is), and cars will need to cross the footpath. Plus, they have plans to put a loading zone where the existing roadside parking is.

                    Unfortunately, the tenants have been notified their lease is terminated, and there's nowhere to relocate in the village. Some spent a lot of getting their store set up just a year ago.

                    I fear our village may go the way of many where real estate agents move in and there's the odd cafe. Fingers crossed the 4 Square doesn't get approval - for that location.

                    cheers,

                    Donna



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