Strata Titled Boutique / Small Office Space

[Trogdor]

Hi All,

What are people's views as to strata titled commercial office space (with an existing tenant in place) as an investment?

For example, low rise (i.e. 3 - 5 levels) with a suit circa 100 square metres?

I.e. South Yarra, Hawthorn, type of areas in Melbourne.

Research shows rent are around $290 to low to mid $300's per sqm, and a cap rate of 6.5 - 7% depending on how you negotiate and how realistic the current rent is compared to market.

Does anybody own such property? What has been your experience? How have you gone with vacancies?

Thank you.

 

[Ridin-High]

Hi Trogdor,

I was looking @ similar stuff a few months back in my local area (not melb).

I guess an easy way i would look @ it as the same as units, its better to get house because you can do more with it...but as with houses it costs more to get freehold comm stuff. Some office space where i work in parramatta has been vacant since i started working their 2 yrs ago.

 

[Trogdor]

Thanks Ridin-High.

Did you end up purchasing?

Has anybody been through a vacating and re-letting process with these types of properties?

 

[Ridin-High]

Thanks Ridin-High.

Did you end up purchasing?

Has anybody been through a vacating and re-letting process with these types of properties?

no it was easier to get 95% lend for a 320k property then it was to put 50% equity for a 200k property

 

[Dazz]

What are people's views as to strata titled commercial office space (with an existing tenant in place) as an investment?

I think our specific title deeds are really great !! Super dooper in fact.

Does anybody own such property?

Yes we do.

What has been your experience?

It has been most satisfying. A pleasure to own. Freedom is a wonderous thing.

How have you gone with vacancies?

Never had any...but if we do we'll either deal with it or go out the back door bankrupt and it will crush us completely. Way scary huh....

 

[Trogdor]

I think our specific title deeds are really great !! Super dooper in fact.



Yes we do.



It has been most satisfying. A pleasure to own. Freedom is a wonderous thing.



Never had any...but if we do we'll either deal with it or go out the back door bankrupt and it will crush us completely. Way scary huh....

Thanks TPFKAD - appreciate your reply... May I ask what the smallest strata titled office space you have is? My original post was for c. 100 m2 offices - do you have anything in this vicinity or all much bigger?

Maybe I should have posted differently - at what point does a strata office become 'too small' - that it has limited appeal to tenants?? (Kind of like the sub 40m2 one bed resi analogy)

 

[Trogdor]

One more question for you TPFKAD - as I know this is something you would be very familiar with.

Say a commercial property has a rate of $X per square metre for its 'standard' usage (office), but the vendor has signed up a more unique type of tenant (specialised medical) for 1.2X per square metre.

On a 5 x 5 with a shade over 2 years remaining on the first 5.

How much would you discount the offer price to take into account the special usage?

My thinking is although this is worth more than a normal tenant, the current guy could up and walk easily at the end of the first term, and then I'd have paid way over the odds if I need to replace with a regular office tenant.

Im thinking of offering my target cap rate based on the standard 1.0x per square metre, and then adjusting upwards based on the extra cashflow summed up over the next 2.5 years (i.e. sum of cashflow and not factored into the capital amount paid based on cap rate). If the current tenant leaves then its not my problem (aside from teh vacancy) but if he stays its a big bonus.

Sensible or too cautious?

 

[Dazz]

Hi Trogdor,


I don't own anything in Melbourne and nothing circa 100 sqm. Nightmare type stuff to be avoided like the plague IMO.


They become too small when the Tenants attracted to such a property are as dodgy as hell, and can up and leave you with no security of tenure and then you sit there for 2 years with an empty place.


No I'm not familiar with one type of Tenant paying more than another. We only own one office, and it had a big secure Tenant installed before we bought it. We have never secured an office tenant for ourselves. Our experience is very limited in this regard.


If you can slide the low price past the Vendor - then it's sensible.
If you cannot, and the deal goes to another and they take up their option, then you have been too cautious.

The most delicious thing about investing is that there are no guarantees, and no-one has a clear crystal ball. That pin-pointing of what's going to happen, along with having plenty of skin in the game, are, IMO, the major differences between a crack investor and an economist commentating on the sidelines.