It’s tough to decide which to buy when it comes to commercial property. The usual hotspots are too pricey. As for whether it’s worth the price, let’s be honest – the reason why prices continue to shoot up is because the rental can support the growth or the other way round.
However, both the rent and price of a piece of property are dependent on the ability of a tenant’s or owner’s business to support it and there’s always a ceiling to this. No one can continue increasing the price of their noodles just to cover higher rentals. One day, the whole business will collapse.
Here are some important points for consideration:
Time is gold. Remember this famous quote? If you look at the hotspots of today, you will find there are a couple of reasons why they became hotspots in the first place.
What was the population growth? When you drive around the area, are there huge residential units that will provide businesses with the customers they need?
Are more developers looking to build within the same area? Are there other supporting amenities nearby? For example, offices, education institutions, hospitals and even a regional mall?
All these will help you understand if you are buying a potential hotspot or paying way too much for a spot today.
What is it for? Do you know the potential business you would like to do? This is extremely important because a restaurant serving great food will be popular whether it’s in a shoplot (there’s Facebook today) or located inside a mall.
However, if it’s inside a mall, the business will have to adhere to all the mall’s guidelines which include its operating hours as well.
Remember, there are customers who would prefer to drive over to their favourite restaurant, park along the road and walk in to order. They do not want to drive to the nearest mall, find a car park, walk a few floors to their favourite shop, and then pay the parking fees just for some food.
One word? Convenience. Remember to know your business well before making your decision.
Potential capital appreciation. Anything on land is going to be worth more in the future. You can refer to many advanced property markets of today to understand.
In fact people are staying further away because prices are growing beyond what they can afford. This is why when areas within the city centre increase in price, areas further away soon follow.
This is unlike retail units within a mall that is usually leased. If the retail lot was purchased, then it’s important to know if the mall is extremely popular or just another run-of-the-mill one.
Flexibility of purpose. A shop-office could be used for many other types of businesses versus a more limited number for retail lots.
One very good example would be budget hotels, especially today when business travellers (usually SMEs) only want a clean place to stay instead of paying expensive rates at a 4-star or 5-star hotel. It’s the difference between staying a few nights versus just one night.
There is also the issue of size. When considering a retail unit within a mall, you would have to make sure the business you have in mind can run smoothly depending on the size of the unit.
Some restaurants serve customers once the row of other shops in their vicinity are closed for business after office hours. Yes, these restaurants are more than happy that every other business proprietor has closed for the day because this means they can arrange tables and chairs along the corridors and in front of these other shops.
There’s one particular restaurant in Petaling Jaya that places up to 100 tables in this fashion. This cannot happen for a retail lot in a mall.
Understand the purpose. It is because sometimes a retail lot within a mall better serves the purpose of your business.
Shop-offices will continue to flourish even with the increasing number of shopping malls because there are pros and cons to both.
By the way, commercial properties can fail whether it’s a shop-office or retail lot in a mall. The important thing is to do due diligence before signing on any dotted line.
This article has appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.