Key Takeaways
- Increasing the value of your commercial real estate property has more to do with the sum of all parts than a single idea.
- The true value of a commercial real estate investment isn’t based on what valuation sites tell us, but rather what the next tenant is willing to pay.
- Not every groundbreaking idea will add value to your property, and not every idea needs to be groundbreaking to add value.
Commercial real estate property value isn’t relegated solely to what online valuation sites suggest or comparables deem. While both are important indicators, there is perhaps an even more important variable to consider when the time comes to value your own commercial property investment: how much the next tenant is willing to pay. If for nothing else, even the best commercial real estate properties are only going to be worth as much as prospective tenants are willing to pay. It’s a sad truth, but a reality nonetheless: your commercial real estate property is only worth as much as the rent your tenants are willing to pay. How much they are willing to pay, however, is up to you.
Landlords can exercise many options to increase the value of their properties. And, as far as I am aware, the best way to do so is to increase demand. According to supply and demand, one of the most basic tenets of economics, value shares a direct correlation with demand. In other words, if you can increase the demand for your commercial real estate property, it stands to reason you can also increase its value.
With that in mind, it’s in your best interest as a commercial real estate property owner to offer the tenants what they want. At the very least, it’s those landlords that can increase demand that stand to do the same for their asking price. So if you want to increase demand, may I recommend the following?
Increase Demand For Your Commercial Real Estate Property
It’s safe to assume that increased demand will translate into a more valuable commercial real estate property, but I digress. Demand isn’t going to simply appear out of thin air, nor should you expect it to. Instead, demand is the result of hard work, due diligence, and acute attention to detail.
You must get to know your target audience and predict their needs if you ever hope to stand a chance at increasing the demand of your own property. Fortunately for our sake, however, most tenants want the same things, and commercial tenants are no different. If you offer the following “amenities” at your commercial real estate property, you could find that demand is your greatest ally in increasing your property’s value:
1. Sub-Meter Utilities
Paying for utilities (gas, waste, water and electric) is nothing less than a familiar expense to the average tenant, and rightfully so. It only makes sense that the person using said utilities should be held responsible for the cost that ensues. Most tenants have come to expect as much. It’s worth noting, however, that while tenants are usually more than willing to pay their fair share of the utility bill, none are going to be happy paying a penny more.
It stands to reason that the tenants in your commercial real estate property will appreciate sub-metered utilities. As the name would lead you to believe, utility sub-metering awards landlords the option of billing tenants individually for their utility usage. In other words, sub-metering will complement each unit in your commercial real estate property with their own water meters, gas meters, and electricity meters. As a result, each tenant will be expected to pay for the utilities they used — no more, no less.
Sub-metering is coveted by prospective tenants, especially when you consider the alternative: dividing the cumulative utility bill between tenants. And therein lies the true value of adding individual meters to each unit of your commercial real estate property. Prospective tenants will appreciate the idea of managing their own utilities, and not the entire building’s. Their appreciation alone will go a long way in adding value to your property, as it could very easily help your property rent for more money and faster.
There isn’t a tenant out there excited about the prospects of splitting their utility bill with a complete stranger, nor should there be. So it may be in your best interest to meet their expectations. In doing so, you could find that you limit your exposure to vacancies and increase the odds of making more money per unit.
2. Introduce Energy Efficient Lighting
While it may not pay off your mortgage anytime soon, one of the easiest ways to add value to a commercial real estate property is to introduce energy efficient lighting to the building’s infrastructure. The right light bulbs can simultaneously save energy and significantly reduce maintenance costs.
I maintain that the use of LED bulbs is the single, easiest way to add both tangible and intangible value to any commercial real estate property. For starters, renters today are more conscious of their carbon footprint than ever before. The average renter will, therefore, appreciate the eco-friendly environment facilitated by your commercial property. That said, their appreciation can’t be underestimated, as it goes a long way in generating demand. After all, what is a great commercial real estate property, if not for one that tenants will swoon over? There is no doubt about it: demand can make or break the value of a property. And if all you need to do is add a few LED bulbs to peek interest, I guarantee it’s well worth the cost.
In addition to making your property more attractive to tenants, LED lighting will also save your tenants from higher energy bills. Not only will they save a considerable amount of energy, but their operating costs are far less than the of your standard fluorescent bulb. What’s more, their longevity will also save landlords money in the long-run. It stands to reason that maintenance costs will be reduced, as LED bulbs can last as long as 25 years. That means you won’t have to hire a maintenance person multiple times a year to change bulbs.
3. Make Parking Easier
Though overlooked more than I would care to admit, few amenities are more integral to the value of a commercial real estate property than parking. As something we all take for granted, parking is something we don’t necessarily appreciate until it’s gone. If for nothing else, a commercial real estate property with parking is to be expected. Conversely, those without access to parking can greatly reduce their chances of realizing a higher valuation. You are only hurting your chances of finding tenants if you don’t offer parking. As a result, you could see the value of your property drop.
Not only does your commercial real estate property need access to parking, it needs access to convenient parking. If your property already has access to convenient parking, you are ahead of the curve. If, however, parking is void from your commercial premises, it may be in your best interest to rectify the transgression.
Consider adding parking wherever possible. Whether it’s the addition of a few street spots or a small parking lot, a little good will can go a long way. At the very least, neglecting to provide parking can detract from your commercial property value just as easily as having a few spots can add to it.
The Whole Is Greater Than The Sum Of All Its Parts
Adding value to a commercial real estate property doesn’t have to depend on the addition of a paradigm shifting idea. Instead, consider adding to the value of your investment property through little changes, here and there. It’s true what they say: the whole really is greater than the sum of all its parts. All it takes to increase the value of your property is a lot of little ideas, not unlike those I touched on above.
Have you been fortunate enough to add value to your own commercial property? Have you had better luck with a different strategy? Please feel free to share what has worked for you, and perhaps what didn’t, in the comments below.
