We all like the thought of dealing with someone who has our best interests at heart, even more so when those dealings involve making a significant long-term investment.
That’s why a buyer’s agent can be an invaluable asset when purchasing commercial property. Risks and rewards in the sector are generally regarded as far higher than those presented by the residential market, and insiders maintain expert knowledge is critical to invest wisely.
Industrial or commercial property purchases are simply more complex than residential, particularly when it comes to contracts, leases and analysis in general.
“That’s why our clients most of whom are successful SMEs engage a buyer’s agent as it lets them continue to do what they are good at and allows the agent to do the legwork for them,” says principal of Portico Buyers Agency principal Reece Coleman. “Commercial property unlike residential isn’t treated as an emotional decision but as an analytical process.”
The current tight market presents another benefit of bringing in expert who can analyse markets and seek out off-market properties to secure the best located premises.
“We will identify properties that have been on the rental market for a long time and ask the owners if they would consider selling,” Mr Coleman says. “We also have a good grasp of average square metre rates and know how that varies from suburb to suburb type.
Buyer beware
One of the biggest pitfalls faced by buyers is extracting a property’s full outgoings from the selling agent, says managing director of Rose & Jones buyer’s agency Byron Rose. Often only the simple statutory fees such as council and water rates and land tax are disclosed - but total outgoings could be far higher and affect a purchase price by hundreds of thousands of dollars.
“Other outgoings to find out about include insurance, repairs and maintenance, air conditioning, management fees, there could be special strata levies,” Mr Rose points out. “I always lock horns with the agents over this as they often only give you part of the story.”
A buyer’s agent will also ask for a rent statement to establish a tenant’s reliability. “Buyers want to make sure a tenant is paying on time each month,” Mr Rose says.
Similarly, a buyer’s advocate will drill down into the essence of a tenant’s business. Rich Harvey, CEO of Propertybuyer, says this often overlooked area is typical for making a commercial property acquisition look “shiny on outside” when it is anything but on the inside.
“A buyer may not realise for example that while an existing three-year lease may look good, it could be held by a business that’s about to go out the back door because they’re being knocked out of the market by Amazon,” says Mr Harvey, also president of the Real Estate Buyers’ Agent Association (REBAA).
“So the quality of the lease as well as the length have to be investigated.”
Inside knowledge
Calculating value is another area where expertise and legwork is necessary, adds Property Buyer agent David Hayter.
"Whereas residential property prices are primarily determined based on the sales of comparable property in terms of size, location and features, commercial property values are largely determined by the possible or current rental return as well as the quality of the lease and tenant." Mr Hayter says.
As with residential, analysing markets is crucial to judging value as well as forecasting future rental prospects. Each sector – commercial, industrial, retail in regional and metropolitan areas - move at different rates.
“It is very important to be made aware of what point your particular property cycle is at plus make sure that there will be on-going demand for the premises,” Mr Harvey says.
“Risks and rewards are much higher in commercial markets than residential so you absolutely need experts to advise you on both the current and potential demand.”