5 Ways to Increase the Value of your Commercial Property
Whether you're just purchased a new property or are considering it, you're likely looking at ways you can increase the value of that asset. For any real estate investor, there are many ways to increase value — short-term, immediate fixes, and long-term, big picture improvements that will enhance the building over time. Let's take a look at 5 key ways to increase the value of your commercial property, in both the short and long term.
Short Term Solutions to Increase the Value of Your Commercial Property
Chances are short-term solutions are your first, best option. Here are three ways to increase the value of your commercial property to deliver results pretty quickly:
01) Increase Your Rent
It might sound simple, but increasing your property's rent is one of the fastest ways to increase its value. That said, increasing rent isn't as easy as just upping monthly rental fees. Raising rent too high can price you out of the market, while rent that is too low keeps your building from profitability.
When planning to increase rent, make sure you first have a solid understanding of the value of your building in your current market. This will help ensure that you know what the market can support. From there, you can make changes that are fair to both you and your tenants. The RENDR team always recommends increasing rent on a regular schedule, regardless of the tenants or the market, so no one feels like each change is a negotiation.
If your tenants are feeling the squeeze of increased rent, remember that you can always negotiate discounted rent or a free month of rent. Discount programs — waiving a month of rent, waived application fees, and other freebies are a great way to ensure your building stays full while sticking to the rent that is fair for your market.
When you go to sell this commercial property, buyers are going to look at your rent roll, which affects your NOI. These rental commitments are the key to a higher valuation when you go to sell the property. A few short-term concessions for great or new tenants won't make an impact on that overall rent roll number.
02) Reduce Operating Expenses
Decreasing expenses is the other side of the coin.
Where can you save? Are there long-standing contracts with vendors that cost much more than the average market rates? Renegotiating vendor contracts can make a big difference, but even small changes like switching to energy-efficient systems, lighting, and appliances can work to save you money and increase the profitability of your commercial property.
When you are looking for ways to reduce operating expenses, know that deferring maintenance is not a solution. Throughout the pandemic, many landlords have looked at this option to a dangerous degree, and it's putting buildings, tenants, and commercial property owners alike at risk. Deferred maintenance is tempting in the short term, but things break. If you repair them on a regular schedule you have fewer surprises.
03) Consider Adding Amenities or Renting out Unused Spaces
Do you have storage spaces, club rooms, or parking spaces that could be rented out? What about large spaces suited for events? Could you rent out an area of your building for pop-up venues, art shows, or another event? All of these are great short-term strategies to increase the value of your property.
Long-Term Solutions To Increase the Value of Your Commercial Property
Always start with the above efficiencies to your rental business. Next, look to improve the asset. These fixes need to be strategic because they involve the risks of investing in the property with the aim of later returns.
04) Consider Strategic Renovations
Strategic renovations require an upfront cost but can pay dividends in the long term when completed. To determine whether a renovation might make sense for your commercial property, first look to your competition.
If their rent is higher and their building is comparable to yours, what is different between the two buildings?
Elements like updated finishes, improved kitchens, and even walk-in closets can add up to serious increases in rent. In most cases, it's best to start small with improvements. Test out renovations in one or two areas of your building to verify that the market will support your upgrades.
Other small improvements, like updating flooring, freshening up the paint, and getting serious about landscaping can all help you increase the value of your property. It's just important to ensure you've carefully analyzed your market, and have a clear understanding of your ceiling. The last thing you want to do is price yourself out of the market.
Because renovating your building does require upfront costs, it's always a good idea to consult with a professional before making a final decision. Don’t forget to consult with your tenants as well. They may be able to tell you directly what the building needs.
An experienced third-party real estate analyst can help you identify what others are doing in the market.
05) Reconsider the Building’s Purpose
In some situations, changing a building's purpose can deliver serious value. Like any market, real estate is cyclical. Sometimes residential real estate is up while commercial real estate is down. Other times, the inverse is true. The best thing you can do to increase and maintain the value of your commercial property is to build in flexibility.
In some cases, changing the use of a building can deliver serious value. The most common use case for this strategy is changing an industrial space into retail use, but renovating a hotel into an apartment or re-marketing office space as medical office space are other great examples of ways to re-imagine and update a building's purpose to increase the potential value of that commercial real estate.
Regardless of your plans for a building, your local zoning laws must support that change. This is another key area where an expert real estate analyst can help you. From assessing the current potential of your commercial property to helping you determine what zoning or use change is possible, and whether that change would be profitable, a real estate analyst can give you the local, data-based perspective you need to feel comfortable in your changes.
Not sure what option is best for your commercial building? Don’t guess. Make data-based decisions to increase the value of your commercial property. RENDR offers in-depth real estate analysis that is founded on local knowledge and industry expertise, and we base all of our suggestions on your risk tolerance. Take the guesswork out of commercial real estate. Get in touch with RENDR.