Tips On Adding Value To A Commercial Rental Property

“Tips On Adding Value To A Commercial Rental Property” written by Mike Marko

Looking to learn how to add value to your commercial rental property?

As the property manager, you only want what is best for the properties that you manage.  And that includes increasing the overall value of the commercial rental property.  Increased value generally results in higher profitability.

That’s why in this article, we’ll talk about ways that could help you in improving your commercial rental property.

Ways To Add Value To A Commercial Rental Property

Improving the value of your commercial rental property can be the key to improving the overall investment profitability. As an investor, you could be considering upgrading or adding additional construction to increase the size and rental space to increase your profits associated with your commercial rental. New construction or upgrades are possible and sometimes easier when you are using a property management company to manage your commercial rental building.

Whether using commercial rental income or taking out a new construction loan, upgrading or new construction to your commercial building can increase tenant rents, improve usability, and often give the property a facelift. Often times property management companies are able to easily upgrade your property with the commercial rental profits and the construction contracts that they presently have.

In this article, we will discuss the ways you could add value to your commercial property and in the process make your property competitive with these simple solutions…

Make Structural And Cosmetic Changes

The commercial rental market and attracting the best paying tenants is often expanding and competitive. Often times commercial companies or tenants looking for the newest or most attractive buildings and properties to locate their businesses. In fact, making structural and cosmetic changes to your commercial property could attract higher and better-paying tenants.  

Your commercial rental property often provides a good cash flow in attracting tenants and keeping the property fully rented.  Often times, when you upgrade or make cosmetic changes to the property, can help in increasing the value of your property. An upgraded or cosmetically appealing property gives tenants and visitors a new clean look and can give you the ability to increase rents and upgrade the level of tenants occupying your building.

The next sections will describe different ways to increase the value of your property…

1. Add Square Footage To Your Property

Adding square footage is one of the most common ways to add value to your property. When adding square footage to your property you often times need to use the profits from commercial rental or take out a new construction loan to accomplish this.

As the property manager upgrades or new construction often gives you an advantage over existing competitive commercial rental buildings. New buildings, upgrades buildings, larger facilities and amenities increases tenants desire to become long-term tenants. Even offering reserved parking spaces or employee lots can give your property a competitive advantage over similar properties being considered by a corporation or business.

The most common reason for adding square footage to your commercial rental property is that the present structure can’t accommodate the number of incoming or potential tenants. If this is the case then adding more commercial rental space to your property would be beneficial.

New construction to add space for the following would definitely increase your commercial rental property’s value:

  • extra office, warehouse space
  • storefront and cosmetic improvements
  • parking spaces and capacity
  • storage closets or rooms
  • conference rooms
  • employee gathering space

When adding more space for your business it is important to consult local building authorities first and get the necessary permissions before starting any construction work. When upgrading your building to add square footage you need to keep in mind that the actual square feet are different from the rentable square feet. If your property upgrade or construction has not planned carefully then your rental square foot will be less than the actual square foot which basically means that a large part of your property could not be monetized…

2. Improve The Exterior Of The Property

Just like adding more commercial rental space to your building, another way to attract higher-paying tenants is improving the exterior of your commercial rental property. The external appearance of your property can greatly influence its value and make it more desirable for tenants over older worn down buildings in the same commercial rental market.

As part of improving the exterior appearance of your commercial rental property, you should also consider updating your property’s appearance regularly. Update windows, doors, and everything that are outdated and not fashionable or poorly designed aspects of your property can reduce noise, increase natural light, and help reduce heating/cooling bills.

If your budget commercial rental budget doesn’t allow you to replace and upgrade different aspects of your commercial rental property then painting or regularly cleaning the exterior parts of the building could accomplish the upgrade or improvement that you desire. Painting is much less costly than new facing and can easily improve your commercial property’s appearance.

Painting the outside brick or siding is a simple and easy way to refresh the appearance of your property. It also gives a new appearance without making structural changes. Along with the repainting the exterior building you can also consider investing in professional landscaping. Professional landscaping can significantly improve the outside appearance of your property at a reasonable cost.

Another way to improve the exterior of your commercial rental property that is much less costly, and can be included in tenants rents, is upgrading or adding exterior cleaning costs to your rental lease contracts. As the property manager, you can easily negotiate with a cleaning and garbage pickup company to provide services for tenants as part of their rent. Aside from that , you can use tenant rents to hire full time cleaning professionals for the property that will keep your property’s grounds, parking lots, bathrooms, and walkways clean. This is the cheapest and easiest way to boost the value of your property.

When considering adding cleaning employees or a cleaning service the following areas need to be included or addressed when establishing cleaning contracts or responsibilities:  

  • picking up garbage
  • ensuring lawns are cut and well-manicured
  • removing clutter
  • ensuring there are no odd smells

3. Update The Signage

Another way to give your exterior building a simple upgrade is to update your commercial rental property’s signage. New signage is an effective and cheap way to upgrade the exterior appearance which could help in attracting higher paying tenants.

New updated and professionally developed signage would attract people looking at the exterior of the building making the building more attractive for a retail business or a company to locate their business in the building.

If your business’s signage is inadequately sized, hidden by the landscaping, difficult to read, looks unappealing, or is otherwise a misinterpretation of the property’s purpose, consider replacing it with a new one or just update the old. Try a variety of sign styles, materials, sizes, and placements. But before anything else, consider consulting a sign maker to learn of all your options and make the best decisions for your property.

Additionally, when considering upgrading signage for the exterior of the building you should always check with your local government building and sign codes.  Make sure that you are allowed to change or upgrade the signage to the style and shape you desire for your building. Most signs are regulated and require permits and approvals by local and building inspectors…

4. Increased Security And Parking

To increase your property’s value, consider adding useful features such as additional parking and dependable security.

Security features such as alarm systems, gates, and shutters can increase property value. It can also make your property to be more attractive, and at the same time, it lowers your insurance premium.

For additional parking, consider renting from nearby lots that go unused during your tenant’s operation hours. For instance, your tenant’s businesses may have daytime hours but there’s a nightclub lot nearby that is empty during the day.

As the property manager, you should consider renting the nightclub lot out during the day to a food truck or another mobile business.

Earning More Income

The value of your property increases if your business is earning above average income. Therefore let’s talk about how you can increase the income of your commercial rental property.

1. Know The Neighborhood

A commercial property would be more successful if it’s located in the right neighborhood.

Knowing how much other commercial properties in the area sell for and the general market value of the area will be helpful in determining what direction to go in for the commercial aspect of the property

Before acquiring the rental property, make sure that it will provide what is lacking in the neighborhood. Take the time to determine what is most needed or desired at that time in that area. Consider the needs of the neighborhood and think about the future developments that may be in the works will could affect the supply and demand of your investment.

2. Name The Property

To keep your customers and clients coming back, make sure that your commercial rental property has a name that will describe its character and charm.

The name of your property enables people to identify its purpose and position in the market. It is important in establishing the brand of your property because it can significantly increase or decrease its value.

For name ideas consider the property’s history, placement within the community, purpose, neighborhood, and tenants. You can also consider selling the naming rights to a large tenant to earn some additional profit.

On the topic of names, consider changing the name of the street or road where the property is located if it is odd or extremely difficult to pronounce. For instance, Shades of Death Road may see some struggle on commercial property value. You can petition to your local planning and zoning departments to have street names changed.

3. Find Tenants

To be successful, a commercial rental property should be full or nearly full with tenants.  

To attract new tenants, offer move-in specials to attract new tenants and for existing tenants, ask them to refer new tenants and consider offering an incentive in return.

Incentive examples include a finder’s fee, one month of a discounted rent rate, or access to a premium property amenity. Getting new tenants through referrals may increase the tenant synergy of the building. It means that the types of businesses on your property will be in a similar niche.

4. Avoid Vacancies

An empty building would definitely decrease the value of your property. You could avoid this by having the proper policies and procedures which can greatly help your business in retaining tenants.

It’s your responsibility to keep your tenants happy. Therefore work to maintain an excellent relationship with your tenants. Address any their concerns promptly even while you’re maintaining the property.

Keep in touch with the wants and needs of your target tenant market. Consider adding features that are usually found on high-end apartment buildings such as gym facilities, wi-fi, and ample parking.

5. Raise The Rent

The last point I would like to cover is raising the rent.  Raising the rent is one of the easiest way to increase income.

Raising the rent may be the easiest way to increase value, but it needs to be carefully done. If you do this the wrong way, it could make your tenants move out from your property. That’s why I want to provide some guidelines in raising the rent.

If your building has a very high occupancy rate (95-100%), it means that you could should probably increase the rent. But if your property is rented by smaller businesses or low-income tenants, raising the rent would be a wrong decision. Unintentional decrease on the commercial rental property’s occupancy rate could lead to lower revenues, and it will become more difficult to attract new tenants.

Whenever you’re trying to increase the rent, make sure that it would not be a reason for your tenants to leave the property. Also, it should not be a problem for upcoming tenants.

The following are the possible justification for raising the rent:

o if your property has higher-end tenants, 

o if your neighborhood is popular,

o if there is a waiting list for your property, or

o if nearby property rents are higher.

If you recently added parking lots, new security measures, or top-notch air conditioning to your property, weigh the factors before you decide if it would affect the amount of your tenant’s rent.

Final Thoughts About Commercial Rental Property

In this article, we talked about how to add more value to your commercial rental property.  Adding value to your commercial rental property will help make your rental property management business more profitable long term.  

To increase the value of your property, add features that will be useful for your current and upcoming tenants. Improving the appearance and updating different aspects of your property would definitely attract new tenants. Lastly, avoid having vacancies and be careful when you’re increasing the rent: don’t let it become a reason why your tenants would leave your building.

If you have any questions or comments please add to the comment section below.




Suggested Articles:
1. How To Establish Base Rent And CAMS For A Commercial Real Estate Lease
2. How To Create A Basic Residential Lease Agreement Template
3. What You Need To Know About Month To Month Lease Agreement

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Article: Tips On Adding Value To A Commercial Rental Property

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