In hard economic times it becomes even more relevant, says Willem Bosch, Business Partners COO of property management services. “In good times, nearly any business property can work because the tenants queue up to sign leases. But when the economy turns, the badly situated ones do not survive,” he says.
What constitutes a good location for a business property? The two main factors are visibility, especially for retail property, and ease of access, says Bosch. A property that can easily be accessed from both sides of a main road is so much more valuable than one that can only be reached from one direction.
Access is also important for industrial premises, not only retail. A warehouse or factory situated in a corner of an industrial complex, for example, can suffer from a compromised flow of delivery trucks.
Levels of crime in an area as a whole obviously affect the value of a property, but it could also be a factor of its specific position. A dark, less visible spot is more prone to criminal attack, although very often these factors can be eliminated by security infrastructure such as fencing and lighting.
Nowadays the availability of electricity supply is also a factor in the position of a property. It has become more difficult for a brand-new development to get sufficient electricity infrastructure, giving existing complexes an edge.
The quality of a business property’s position is not simply whether it is situated in an affluent area or not. A business property in a low income area can provide the owner with just as big a return on investment as one in a high income area, says Bosch. The crucial factor is where and how the property is situated within the area, as well as the cost thereof.
While the flow of vehicles and access may be the crucial determining factor in upmarket centres, for example, the success of a centre in a poor area is more likely to be influenced by pedestrian traffic. In these areas it is important to be situated at a transport node or in the middle of the area so that it is within walking distance for the maximum number of people.
To ensure a good return on investment in low-income areas, the developer must keep costs strictly under control because rentals will be lower, says Bosch. Investment in such areas are therefore most likely to be through the purchase and upgrade of existing buildings, rather than the construction of new ones, which is almost always more expensive.
At first glance, the position of a commercial property seems to be a once-off issue that entrepreneurs have to consider only before they buy. It is true that, once bought, there is nothing you can do about the position of your immovable assets. But Bosch warns that property owners must not lose sight of the fluidity of the environment around the property.
A lot can happen to an area in the seven to ten years that is normally the time-horizon for a property investor. A prime position for a shopping centre can chance overnight if a competing complex is built down the road, or if the council decides to shift the traffic flow by building a new road.
More insidious are slow changes in demographics that many areas are prone to. Within a decade, a low-income area can make great strides towards gentrification, or a middle-income area can become poorer.
While there is little that property owners can do about these shifts, staying aware of the changes in your environment around your property helps to adapt the property early on so that it can remain optimised for its location.
Bosch advises property investors to follow official advertisements and notices about pending changes to road infrastructure and new developments. Being plugged into the local business network also helps. Property owners with early warning can try to lengthen their tenants’ leases, or can start adapting their tenant mix to suit the changing circumstances.
The position of property may be fixed forever, but property owners should not lose sight of their own power over the environment around their buildings, says Bosch. It is crucial for property owners to be actively involved in improving the area. “In the past, the council maintained the pavements. Increasingly, property owners have to do it themselves,” says Bosch.
Thinking and acting beyond the confines of your property’s border is ultimately good for its position and its value.