Monday, March 4, 2013

Rental Property Investing - Office Properties

Now let’s look at Office properties. Again, they come in many shapes, sizes, design styles, and for a variety of user types. Specifically on users, they can be categorized as follows: business office, institutional/government, medical or commercial service.

Multi-tenant office developments may be located near residential neighbourhoods, within business parks, or in established commercial districts within a city.  Tenant rosters could include accounting firms, law offices, personnel agencies, mortgage brokers, insurance offices, and chiropractors.  As in the case of retail, a development can be designed for a single user and within a freestanding building.    

In looking at successful office properties – same advice as with retail -- pay particular attention to not only the property’s current vacancy status, but what its historical pattern has been. Are current rentals on a per ft. basis, at or above/below the prevailing office rates within the area. It’s all about supply & demand, and lease rates are mostly dependent based on the realities of your particular marketplace.

As with other commercial properties, the value of an office building is very much tied to the amount of rent collected. Review applicable Cap Rates for recent office building sales, to give you a benchmark as to how your subject building relates. Also in studying the tenant summary, how dependent is the landlord on 1 or 2 units in order to sustain an adequate cashflow?  It’s the ‘What-If’ analysis – so if a tenant occupies 50% of your building (representing 50% of your rental income), what happens when they leave and how easily can the unit be re-tenanted and at what cost?  It is as we’ve said many times before, all about good Due Diligence.

Just a final word, on evaluating a property to see how it performs on a daily basis.  Visit the site during busy times and see how it functions – Is there really enough parking?  Is there a good/compatible tenant mix? Ease in visitors accessing the site?  Does it appear to be an operational success for tenants, their employees and visitors?  On site observations are always well worth the effort and can tell you a lot about the viability of the property.

As always, seek out experienced commercial realtors within your market to assist in reviewing viable Office Properties as investments.

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