What will my property return? Is my tenant paying the correct rent?
With more than $8.1 billion in commercial property currently under management, Burgess Rawson’s Asset Management team is the market leader in managing and maximising commercial property investments.
Here, our Heads of Asset Management Phill Harrison and Ben Walsh discuss the topic of ‘rent by postcode’.
“What will my property return?” and “Is my tenant paying the correct rent?”
These are questions we are asked every day.
In commercial property, the postcode does play a factor in rental rates but it is certainly not the holy grail.
A misconception is that postcodes of high performing residential suburbs translate to high commercial rent per square metre. That simply isn’t always the case.
Factors such as car parking, daily foot traffic, use and property size are important considerations when assessing any commercial rent in any postcode across Australia.
Take for example Bridge Road, Richmond in Victoria. While Richmond is a long term, high performing residential suburb, in commercial terms it is flagging. Due to poor management and overpriced rents historically, Bridge Road is now suffering from high vacancy rates and low-quality tenants.
Unfortunately, Bridge Road is not alone with examples like this can be seen all around Australia.
So, while postcode plays a role in establishing rent, there are many other factors that must be considered. Here are my top four:
1. Professional advice
Many owners seek to know if they are charging the right rent for their postcode or location.
And this information can be particularly hard to find for private investors.
The best thing an investor can do, is reach out to professionals who lease and manage in the particular area; and who understand the market factors and economic conditions of a particular postcode.
2. Do the research
Secondly, not all rents are created equal.
When seeking out market information, people may express the rent in different ways – gross, net, including GST, weekly or monthly. And without detailed market information, you are comparing apples to oranges.
“A misconception is that postcodes of high performing residential suburbs translate to high commercial rent per square metre. That simply isn’t always the case.”
Other factors that can affect rents in a postcode are tenancy size. For example, a kiosk in a shopping centre on a square metre basis may translate between $3,000 and $8,000 per square metre. However, they could be located directly outside a shop that is paying $600 square metre.
It is not a one size fits all situation.
The final consideration is best use. A higher square metre rental may be obtained by the right tenant in the right property in the right location.
Strategic management of your commercial asset by knowledgeable managers will enable you to maximise your returns, secure the best tenants and provide an uplift in capital value.
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