We continue to have discussions with business people considering their options, around occupation and ownership of their own commercial premises, whether it be industrial, office or retail. The attractions for owner occupiers are:
- they know the tenant (obviously)
- they expect to see capital gain over time
- they are paying their own mortgage
- they have the ability to manage cashflow and rental, in what has been uncertain times
What we have discovered through further discussions with some of these potential owner occupiers, is that they are willing to compromise on aspects of the premises suitability for their business, purely because they can own it. This may not be an issue initially, but can become one in due course, particularly for larger businesses who maintain a greater capacity to contract or increase their staff numbers, or for smaller business who may be restricted for space as they grow.
The downside for owner occupiers are:
when purchasing, compromises are sometimes made, that would not have otherwise been made if it was a decision on leasing
they remain financially bound to the property, even when it may no longer be completely fit for purpose, due to size, layout or location etc
having different ownership structures for the building and business can and often does, create conflict between the two different entities. There can also be a perceived conflict of interest when it comes to rent reviews and lease negotiations etc.
That all said, everyone has to make their own decisions and balance building ownership with what is in the best interests of the business. NAI Harcourts Hamilton for instance, has made their own decisions independently. We lease a prime CBD corner location in a much more prominent building than we could otherwise have afforded individually, with an excellent Landlord in Stark Property, who maintains and manages the building. This allows us to focus on the most important aspect – our business.
Individually and independently our team have decided on their own path to property investment. Over the years individuals have purchased a mixture of residential and commercial properties that tick their preferred requirements. Some are seeking cashflow, others capital growth or further development potential. To some location is important, to others it is the land area or business use.
Use of capital and its return on this, is another important aspect for consideration. In most instances there will be a far higher return on the capital utilised in the business, than the return on the capital tied up in the land and buildings – unless you happen to be a developer.
“Don’t wait to buy real estate, buy real estate and wait” – T Harv Eker
What may be a better solution, is to keep the two interests at arm’s length:
Decide on the best location and specific requirements for your business, allowing you to focus solely on the current and future success of the business. If and when the premises no longer suits those businesses requirements, you can then consider alternative premises options or even the possibility of your existing Landlord assisting with refurbishment / reconfiguration, in exchange for a new lease.
Consider purchasing a commercial or industrial investment on its own merits. This can be around price bracket, location, use, lease covenants. This also allows you to spread the risk and make decisions without fear over a possible or perceived conflict of interest.
Without compromising, this keeps everything at arm’s length and may well provide the best of both worlds – the best location for your business to prosper and an investment that ticks your investment boxes.
2022 has been a challenging year, which 12 months ago we had not fully anticipated. It is with some certainty that I am suggesting next year will be no different, continued uncertainty and businesses having to be flexible in finding ways to manoeuvre the Covid environment and our new traffic light system. One just hopes that once we hit the traffic light system (Covid-19 Protection Framework), that we stay there and don’t all of a sudden find ourselves in another series of lockdowns.
Property will continue to be an excellent long term investment, but should always be balanced against ones business aspirations.
