What are the best practices for evaluating a commercial property's future growth potential?

The digital and remote era has changed the way we use and value commercial properties. Location may not be as important as it used to be for the growth potential of a property. Instead, innovation, management and marketing strategies may play a bigger role in some cases. For example, some real estate players are using technologies like IoT, sensors, touchless entry systems, and UV-light robots to enhance safety, hygiene, and user experience. Others are implementing innovation management tools to foster a culture of creativity and collaboration among their employees and stakeholders. These are some of the ways that innovation, management and marketing strategies can help commercial properties thrive in the digital and remote era.

Evaluating commercial property's future growth potential involves: 1. Location: Examine accessibility, demographics, and supply-demand dynamics. 2. Market Trends: Analyze economic trends, local conditions, and upcoming developments. 3. Property Factors: Assess the property's condition, tenant quality, and versatility. 4. Financials: Review cash flow, cap rates, and financing conditions. 5. Legal Aspects: Check zoning, environmental issues, and available incentives. 6. External Factors: Understand local competition and broader economic events. 7. Consult Experts: Engage brokers, managers, appraisers, and planners for insights. Thoroughness and adaptability to market shifts are key.

When evaluating a property's value, there are several key factors to consider, such as location, market data, demographics, and comparable properties. Additionally, for properties intended as investments (non-owner-occupied), it's important to analyze the property's leasing performance over a historical period (i.e 7 years, 10 years, 20 years, etc). Understanding the property's Net Operating Income (NOI) and its potential growth in the current market is also crucial.

I want to emphasize the growing significance of environmental sustainability in the commercial property market. Today, businesses are increasingly focused on sustainability and eco-friendly practices, and this can profoundly affect a property's growth potential. Investing in properties that are energy-efficient, utilize eco-friendly materials, and incorporate sustainable practices is not only good for the environment but can also reduce operating costs. This, in turn, can make your property more appealing to a growing market segment of environmentally conscious businesses. Understanding and promoting the green features of a property can set you apart in the market and position your investments for long-term success.

Demography, buying capacity, Market trend and acceptance of the brand in the specific location... competitors Market stake .. supply chain These are basics

Size of the tenant and teeth to your leases. I want to know if there are go dark clauses. I want to know RR and escalations. I take for granted that there is ample parking and non- compete clauses. A good landlord wants the right tenant mix. Not just lease for the short term. Of course cap rate now and In 5 years. How much is leveraged. The best landlords don't go past 45% so if you lose your anchors you can still hand on. Ride out the storm.

Need to also evaluate the life and maintenance of the building. The transition facilities, distance from bus stops, metro station, Railway station, Airport etc.

Location which offers maximum footfall in case of retail shop / showroom & office that is in main CBD; will be prime property that will command best advantage.

Strength of the surrounding trade area, type and success of its existing components will usually correlate with the potential of individual properties within the trade area, e.g. trade areas containing a significant amount of residential, anchored retail centers, office and employment, typically have more potential than those lacking any one of these. A specific property's potential can be predicted by assessing how well currently existing businesses are performing and sales volume amounts being generated at existing facilities in the trade area on properties with site characteristics similar to the subject.

Newly constructed property using the latest construction technology, offering in-house amenities like escalators, galleries, washrooms, etc for shoppers, clients & visitors will attract more business.

It’s true that a lease should be balanced to meet the needs of the lessee and lessor as this creates a better relationship for the duration of a lease. Certainty of income for the landlord and unfettered rights for the use of the tenancy by the tenant can become strained at times. The most important thing is that both parties can resolve issues, when they do arise, and that both parties enter into the agreement with eyes wide open.

In my experience, the most overlooked clauses are the option clauses. Options to terminate are relatively rare and can typically only be negotiated by a AAA anchor tenant, at least in an office context anyways. For the more ordinary tenants, it's the options to renew/extend that can cause a lot of grief in a rising market. For one thing, a renewal and extension of a lease aren't the same thing. A renewal allows you to re-negotiate all terms of the lease. An extension typically limits you to the material business terms. How the market rent gets determined is also a frequent source of contention, because a poorly drafted one takes you straight to the $100k+ arbitration bill. Most people don't understand how expensive a dispute is.

It's the backbone of the contract. Both parties should ensure their interests are safeguarded & are in-sync with prevailing regulations. Contract needs to be justified & fair to ensure none of the parties are taken advantage of.

When it comes to projections, a property manager might look at rent increases, addition of new tenants, or redevelopment opportunities. For instance, if a new highway exit is planned nearby, this could increase traffic flow and potentially boost the shopping center's value and rental income. Projections would then incorporate this anticipated growth, forecasting higher NOI and perhaps asset appreciation. This combination of current financial health and thoughtful, data-backed projections can persuade stakeholders that the property is capable of growth and is a sound investment, thereby enabling further capital improvements or refinancing to secure lower interest rates.

In this financial journey, it's important to remember that the property's location and market trends are vital characters in the story. The local economic conditions and demand can significantly impact its growth potential. Furthermore, the property's management and operational efficiency play a crucial role. A well-maintained and efficiently run property is more likely to sustain positive financial performance and projections. So, it's not just about the numbers, but also about the external factors and the management team that can make or break the property's success.

The only USP is to lease it to a tenant who will surely add value to the property. Leasing it out to a highly credible tenant will definitely add value to the property.

Availability of ample parking spaces is a key element for the success of any future growth potential of a commercial property. I have seen numerous instances where lack of parking facility adversely affects the performance and sustainability of a commercial property. Unit configuration and size is also a key element affecting the leasing success of a commercial property, which is intrinsically influenced by the type of occupiers in the sub market location .

Legal and regulatory considerations must be taken into account. For example, the terms, conditions and rent review provisions in the lease are likely to have an impact. The property's regulatory legal compliance is also a factor worth considering.

I think that Innovative Pricing ( Lease Terms) could be key. Rather than viewing it from the perspective of the financial performance and projections, one needs to look at it from the Potential Lessee's point of view. What are the chief factors that are influencing a Lessee's decision, etc ??? In a scenario where Work from Home has gained more prominence-post Covid-, the Lessor will have to resort to Innovative Pricing, that could influence Lessee's decision to (1). move in to the said Commercial Property and/(or) take more spaces. The Pricing will have to be Unique which will make the Lessee sit up and take up notice.

The caliber of tenants i.e multinationals and blue chip companies tend to create a high value feel and secure, lease uptake, occupancy and premium commercial terms wouldn't be a challenge

Initial contract & final Disbursements & who will evaluate them & what will their costs be to the company & to the next tenant i.e. who will come after you !!

Location is key. A commercial property's location can significantly impact its value and potential for growth. Consider factors such as proximity to amenities, transportation, and target demographics.

Use a experience commercial real estate agent that is well versed for that geographical area that has comparables which may vary with standalone structures that may or may not include stated CAM fees in the lease. When in doubt of the four corners of the contract pay for a commercial real estate attorney (Highly recommend). Request a written agreement/addendum on any alterations or buildout, pre-installation concession if any, with local city/county building code permits signed off on before occupancy.