When a commercial property grows old, running its owners into a problem of major vacancies. And it is now difficult to attract new tenants. Most owners in this situation would try what they feel is the best option to remedy the situation. Choosing the option of lowering rent, which means a lower profit margin, in a bid to fill the vacancies. While others might opt for reinventing the property, as in a large-scale remodel, which means higher rents after renovations.
The remodeling option is not without risks, it requires patience while investing capital. But I’ve witnessed several owners go for the easier option of lowering rent and not making any profit at all. Whereas owners undertaking the latter option, making a significant profit. When implemented properly, remodeling is the best option for commercial property owners to convert a set back into a breakthrough.
A good remodeling example is that of one of our clients who is a proud owner of four business complex buildings. He lost his main tenant who occupied about 25% of the building’s rentable unit. This was a large scale vacancy. And instead of hitting the panic button and lowering the rent, he directed funds up to $2 million into remodeling his property.
By doing so, he increased the value of his property by making the building more energy-efficient through lighting, and green roofing, leading to a reduction in utility bills. For the existing tenants, the renovation meant an improved working environment, with new furnishings, fixtures, and parking.
Though the remodel of the four buildings took approximately 8 months in total, the owner had success increasing the rent by 25% and reduced downtime between tenants. Wasting no time in filling a vacancy that was about 8 months old before the renovations. This way, he was able to pay for the project with his first rent and his profit margin will continue to increase. By investing in remodeling and increasing his property value, not only has he improved his bottom line but his quality of assets as well.
To help you make a decision on whether you should remodel your property, this article features four questions you should ask yourself:
1. How Long Has Your Property Gone Without Remodeling?
If your last remodel is as old as 20 years, it is high time you did a new one. In the case of our client, his last remodel was as old as 25 years, so the option to remodel was the clear and obvious one. But if your property has gone 20 years without anything as little as an upliftment, it is probably not bringing the rent it could after a remodel.
2. What Is The Current Economic Status?
If the economy is in recession, remodeling can be put on hold. However, if the economy is in a good place, you stand to gain from remodeling.
3. Have You Consulted With A Leasing Agent?
The way forward when thinking about remodeling is consulting with a qualified and professional leasing agent. He or she must have substantial knowledge about your property type. This way, they’ll take specific factors like; property location, and value of a remodel, into consideration when giving you their professional opinion.
4. Do You Trust Your Property Manager To Manage Through The Change?
Having a trustworthy property manager is pivotal for a successful remodel. The services of an experienced property management company will ensure limited complications if you choose to embark on remodeling your property. Even when faced with a large-scale vacancy, there’s a high chance, you still have tenants you’ll need to accommodate and bring to understanding during the process.
When you embark on the remodeling journey, some parts of your property might be on temporary shutdowns, like:
- Temporary power outages
- Elevator stoppages
- Repaving of parking lots
All of these are huddles the property manager will have to work around with the existing tenants. A trustworthy and experienced property manager can help you in these situations. Maintaining existing tenants’ happiness, and keeping them up to date, with any changes and happenings in the remodel. A remodel that results in driving existing tenants have lost its purpose.
If you’ve ticked the boxes for all these questions, you are on your way to a successful remodeling of your commercial space, improving its value, and increasing your profit margin.