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Top reasons why commercial property is a great investment avenue

For an entrepreneur or small business owner, purchasing the premises in which they operate could provide a number of key wealth creation opportunities and benefits. 

“For business owners, investment in a commercial property would be an investment in their future, without necessarily being an investment in their core business,” explains Mike Walters, divisional head of Renprop Commercial.

Walters provides the top five reasons why commercial property is a great investment avenue for entrepreneurs and small business owners:
 
1.    Property investment is inflation-hedged, which means that it will either match or outstrip inflation in the long term.
2.    The rental is a tax deductable expense in the core business.
3.    The risk of an unknown tenant not paying rent on time or not looking after the property is taken out of the equation if the investor’s core business is the tenant.
4.    The concept of gearing (getting a commercial bond) means the investor fixes the price in today’s terms, ends up paying it off over 10 years with ‘before tax money’, as the interest paid on the bond is tax deductable.
5.    Entrepreneurs create wealth or their own retirement plan through putting properties into separate entities like trusts or private companies with the same or other shareholders. The core business is then placed in the premises as the tenant.

Walters says that the basic principle of this investment equation is that after a 10 year period, the money spent on rent could have rather been put towards ownership of a commercial building, which over time will become an asset. “As the capital value of the property increases, so will the investment and asset base,” he says.
 
Walters points to one of Renprop Commercial’s latest projects as a case in point. Rental amounts in the 110 Conrad Corporate Office Park, where Renprop Commercial currently has units available for sale, would be in the region of R110/m2 per month. Capital growth for commercial space in the area currently sits at around 10% annually. (Ref: Rode Report 2014 2nd quarter)

If you had to take an 8% escalation on the rental amount of Unit 1-  which has an area of 140m2 – over the same time frame as the bond term, businesses could expect to pay R3.0million in rental fees by year 10. “However,” says Walters, “businesses that purchased the same unit for R2.1million would have paid off their bond and would have the benefit of owning an asset outright, without ten years of continual annual escalations.”
 
Therefore, Walters believes that many companies who are feeling the uncertainty of the current economic climate, but who have the capital available, should make an investment into a business property and thereby their business security by securing their own space versus renting.
 
“Commercial Property loans are only available on a 10-year term, and a deposit between 20% and 30% will be required by the banks,” he says. Aside from the low interest rates, and possible fluctuations, Walters points out that it’s currently still a buyer’s market in the office space sector, meaning market conditions favour buyers in that there are a number of value-for-money premises available for purchase.


110 Conrad Corporate Office Park -3D Exterior Perspective
 
He adds that investing in commercial property is a far less volatile option than investing in the equity market, provided that the property is situated in a prime location with the tenant as the business and the same shareholders as the landlord.
 
Renprop Commercial’s 110 Conrad Corporate Office Park, for example, meets these criteria, as it’s well located on the corner of Conrad Drive and Jan Smuts Avenue in Craighall Park.  Proximate to the financial hub of Sandton while still offering easy access to other commercial nodes such as Rosebank and the Johannesburg CBD, 110 Conrad is also well located close to major transport routes and other facilities such as the Colony Shopping Centre, Planet Fitness Gym and a variety of restaurants.
 
The well known Hackle Brooke conference venue is already operational within this development, providing an onsite conference centre and meeting room facilities as well as a coffee shop and restaurant ideal for light lunches and informal meetings. All services and infrastructure within the 110 Conrad Corporate Office Park are complete.
 
Ideally suited to small and medium size businesses, the three new buildings that make up the office park will house eight sectional title units each, which range in size from 120m2 upwards for multiple units. Each building offers basement parking as well as ample visitor’s bays. It will take approximately one year from signing the sale agreement to completion, volumes depending.
 
“Buyers could opt to purchase two or three units in different combinations if they are looking for a larger space,” says Walters. “The purchase price of these sectional title units is approximately R17 800/m2, which is very competitively priced for the area.”
 
Ultimately any purchaser is looking for a return on investment. According to Walters, the key to purchasing a commercial property that will be a well performing investment is finding a location that meets all the needs of the business while positioning the business within proximity to major amenities and business hubs. “110 Conrad meets these criteria, which makes it ideally positioned for positive investment and business growth.”


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