Hold the wrecking ball
When faced with a deteriorating or tired property, demolition isn’t the only answer. With a little maintenance, renovation and TLC, the old can be as good as new – and even increase in value, writes DYAN SISOUW.
For any type of property, renovation and maintenance are an oft- overlooked solution, but should certainly be considered before automatically going for the ‘knock down, rebuild’ option.
While renovating does involve waste, it can be the more resourceful alternative, which will have benefits on cost and the environment if done correctly and efficiently.
If you’re considering holding onto an asset and redeveloping later, you need to be confident that you possess an asset that has a rental uplift through the property location. This involves stipulating in the contract the terms for rental increases each year, even if it is a long lease. As the redevelopment cannot increase value, you will rely on capital growth and rises in rent to make the investment worthwhile.
These types of assets must not be in need of major refurbishment. If they are, trying to find a tenant will prove incredibly challenging.
But what is the best way to reposition an asset with refurbishments?
Renovating is the best option if you are looking to increasing the value of the property in the short-term.
Keeping renovations strictly cosmetic is the best way if your budget is tight. This can sometimes make all the difference when trying to attract potential tenants through the door. Don’t simply try to attract tenants with free-rent periods or nice-looking fixtures; pay attention to the basic condition of the property. If it’s acting as a deterrent to prospective tenants, this could be a sign that cosmetic renovations are necessary.
IMPROVING ENERGY EFFICIENCY
While cosmetic improvements to a property are important for aesthetic purposes, implementing cost-effective solutions that improve the property’s energy efficiency is another method to consider.
Unlike cosmetic improvements, energy efficient additions will be less obvious when walking into a property, but they can lead
to a higher NABERS rating, even via such simple measures as replacing the lights with LED alternatives.
NABERS ratings measure the performance of buildings and their data shows that the number of properties certified and receiving six-star ratings is increasing dramatically each year.
Property owners should be mindful of this, as they need to be keeping up with the status quo and be working towards improving energy efficiency.
CREATE NEW FEATURES
We are now seeing more building owners incorporate end-of-trip facilities into office buildings. These facilities include showers and secure bike storage, as people often cycle to work and/or exercise before business hours or during their lunch break. These facilities are particularly attractive to companies that promote a healthy work/life balance, which is gaining importance in the health and well-being dialogue.
There are other extremes with changing the position of an asset, which include replacing the façade of old buildings and completely refurbishing ground floors and lobbies. While this may prove costly, it usually fits in with longer-term investment strategies, but owners should be careful not to overcapitalise given the market in which they are situated.
Looking at all options is one of the first things investors should do when purchasing an asset and, depending on the type of property and their preferred strategy, renovating correctly can provide a significant improvement in rent and property value. ●
Dyan Sisouw is the director of EnviroScope.
This article also appears in the October/November issue of FM magazine.
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