Buying a commercial property is an investment you are making in the future of your business. But the property itself is a financial investment too. Thus, you need to ensure that the property you purchase is worth the asking price and the additional costs of refurbishing and preparing it for business needs.
It is best to take your time when choosing a commercial property. No matter how good a location is or how good a relationship you may have with the Realtor. Commercial property purchases cost a great deal of money. It can become a big burden that drains your profits if you are not careful. Thus, due diligence is a necessity at every step.
Have your accounting department do a full risk versus expected return on investment of each property you shortlist. Hire inspectors to come in and conduct risk assessments. Have them list repairs and possible safety issues. Arrange for a full electrical installation condition report (EICR) done before you agree to any deal. These inspections take time and can be costly if you have to do several for different buildings. But the cost of an unreliable building with a damaged foundation and faulty wiring will cost much more.
Location Versus Destination
Some locations will offer properties that cost less than other locations. Often the difference in price tag can be very tempting. These cheaper locations can feel like a better investment for your bottom line. But you must consider it from another angle. Is this location a good destination for your suppliers, employees, and customers?
Suppliers may charge more if they have to deliver outside their zones. They may charge more if they have to go to any extra lengths to accommodate difficult geography. A cheap location that makes it difficult for your suppliers to find you and deliver the supplies in a timely manner will change your ROI, profit margin, manufacturing costs, and many others.
Employees are generally willing to commute if their workspace is not too far from their homes. But a workspace that requires them to have an increased commute time without a corresponding pay increase may not be met with much support. Employees will face increased fuel costs for those who drive and more time, cost, and difficulty for those who use public transport. It will eat into their personal time and affect their motivation to stay with your company. You could lose trained staff to resignations because the new location is too expensive for them to afford to keep their job.
Customers will not make an effort to drive out somewhere far away unless they need what you are selling. They are focused on convenience, and an inconvenient location would send them to a competitor even if their product costs more. They will see the extra cost as a worthy price for not having to drive out of their way.
You want a property that you can turn into a source of income if your intended purpose for it falls through or changes. Businesses need to register what they intend to do with the property they purchase. If you indicate that you intend to use it solely as an office space, you may find difficulty turning it into a warehouse or industrial property later on. Consult a business lawyer and register the property so that if you need to use it for a purpose other than the originally intended one, you will still be able to do so.
Your ability to modify the building and the surrounding landscape may not be absolute. There may be laws and regulations that apply to the extent to which you can modify the property. Find out if you can make both external and internal modifications. This may come in handy later on if you ever want to section off parts of the property for different usages.
The support services surrounding the area must be easily accessible for the property to be a useful addition to your company investments. If you intend to use it for manufacturing, you want to be within the radius of healthcare services such as hospitals and ambulances. Office space would benefit from being close to free or cheap parking and being in an area with good security. Proximity to eateries is also a good way to keep employees satisfied and focused.
Choose a property that would be attractive to others if you ever need to lease out the space. The pandemic has underscored how important it is for businesses to have more than one backup plan in case of economic upheaval. Having a commercial space with good access to support services can help you to with leasing out your commercial property. This will generate an income for your business while you restructure and plan the next steps for your business.