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    Saturday, 10 September 2016

    Property investments in office buildings and rental determinants

    WHEN attempting to determine the rental of an office building, an investor must consider some of the following factors that would determine the rentals achievable on the investment:
    •    If  you are interested in investing in office space, you need to consider white collar job growth in the area where you are investing as well as economic growth since this is a leading indicator for office space demand. Also note that a growing  local economy increases the likelihood that business will hire more workers on a full time basis and in turn will require more office space for these workers.
    •    Another indicator that the investor must look at is vacancy rate. A rising vacancy rate in office space leads to a decline in rent per square meter together with increased tenant turnover. One also needs to take into account an area's absorption rate which measures the newly created office  being leased in a given market during a certain period of time. If newly created space is being leased at a rapid clip, rent prices should also be consequently rising.
    •    LOCATION – The value of an office building can largely be measured by its location relative to other business facilities. When a locational analysis for an office building is being done, it is important to note that there has been a shift in emphasis for the location office buildings to suburbia.
    •    NEIGHBOURHOOD – The value of office space is definitely affected by the building's immediate neighbourhood. For example, obsolete or dilapidated buildings could detract from that specific area. Conversely, attractive surroundings could considerably increase the value of a building.
    •    APPEARANCE – Although new buildings generally appear attractive, it does not imply that older buildings are unattractive, the uniqueness of some older buildings can make them most desirable.
    •    TENANT SERVICES – Prospective tenants normally judge an office building by the quality and competence of the various services which are either included in the rental or which can be obtained. The most important of these  services being cleaning, protection, security, maintenance, air conditioning, etc.
    •    Other factors to be considered are pricing, cost of financing, nature of lease agreement and rentals, economic stability etc.
    Ref: Management of Commercial and Industrial  Properties, CE. Cloete, SAPET, 2002
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