So you have decided to take the plunge and invest in commercial property. It is a big step. Like any investment, it must be well researched. Failure to do so may result in an underperforming asset or perhaps even a significant financial loss.
Most successful investors in any asset class spend considerable time researching and learning about the various factors that can affect the performance of their chosen vehicle. This study will often reveal where the opportunities and pitfalls lie.
Commercial property is no different.
There are many factors to consider. Here we will briefly look at the specific approved use of properties.
The specific use of a property should not be confused with the permitted uses that may apply in a particular area. Permitted uses are often many and varied. A typical suburban business area may include offices, various types of retail classrooms, and consultation rooms. However, the local council will generally allow a specific type of use for each particular property. Providers or their agents may provide you with this information, but unless it is in official council correspondence, as part of your due diligence, it is worth researching and independently verifying this with the council. While this may incur a fee, it is money well spent for the peace of mind it provides.
Now the specified uses indicated by the council can be very specific or something more generic like ‘showroom’ or ‘shop’. Again, it is important not to assume what these terms mean. When seriously considering a potential investment property, it pays to familiarize yourself with local council regulations and planning guidelines. It may require obtaining the various relevant publications and also speaking with a planning officer to unravel the various intricacies and subtleties involved in defining the terms they use. Using the ‘shop’ example above, you might be surprised to find that it allows most retailers, except those that sell food, whether packaged, cooked, or fresh. This could be important if the site you are considering is ideal for a restaurant but that use is not currently allowed.
At that point it is also a good idea to familiarize yourself with the municipal requirements for requesting a change of use. This is not necessarily difficult, but for some specific uses there may be issues that need to be addressed, sometimes at significant cost.
If the property is a leased investment, or even if it is vacant and the type of business that previously existed is known, again, do not infer that a property is or was being used in accordance with its permitted use. There have been many landlords who later discovered that the property is operating contrary to its approved use and went through considerable expense and effort to seek and obtain retrospective approval.
It’s easy to see that knowing important information about permitted uses can help you avoid some of the pitfalls of investing in commercial property.