When searching for a commercial investment what makes a good location?
Often when I am checking out an area, I will visit several times – at different times of the day and different times of the week.
This is especially true when it comes to retail and shopping centres.
Sometimes I feel like a PI staking out a shopping centre.
But this kind of recon is essential to give you an idea of how busy the property is, how much foot traffic there is, the kind of clientele it attracts.
To an extent a retail investment; a cafe for instance or a hair salon relies on passing trade, this can be both foot and car traffic.
It’s good to know how busy that traffic is, when are the busy times, whether the car parking works.
These are all things that don’t come up in an information memorandum or even talking with the agent.
I also like to talk to people who are shopping there or the tenants.
Recently I was looking at a small group of shops which looked ok, but when I started talking to some of the locals they pointed out how terrible the parking was and that the parks got used by customers of other local shops leaving no room for customers of the actual shops I was looking at…
…but how would you know that unless you were doing on the ground recon like this?
Another one I was recently looking at looked not bad but attracted a large crowd of youths who caused trouble, took drugs and got into fights. I watched the place over several days and they were there every day. Not really what I was looking for.
If an area has a few cafes and the regular service type shops, i.e., hot bread shop, newsagent, bottle shop, hair salon, real estate agent. It is most likely to be surrounded by residential development, in fact, you often see residential developments for sale, say, a new block of apartments quoting the fact that they are near a “cafe precinct”.
The two go hand-in-hand. I love areas to invest that have a shopping strip surrounded by residential development, a quick check of the zoning of the area north and often you will find that there is no more land zoned for commercial business.
This is a great sign. In this situation, you rarely see vacancies – which is exactly the sort of thing you want in a property
Everything in business is driven by supply and the demand; commercial property is no exception.
When you find an area like this, you’ll tend to find that the cap rate of that area will go down, raising the values of the property.
So where do you find this kind of deal? It’s fairly likely you’ve driven past or through local shopping/dining area like this for years.
Until we see the potential cash flow that could come from a property like this we tend to only think of them in terms of their function and convenience.
One you start looking, however, you’ll see that little groups of shops are everywhere in the cities and suburbs. They serve local dwellings and are often quite busy.
Now here’s the one thing you may not know. Many properties like this change hands without ever coming onto the market.
I cover how to find off-market deals in my course but to give you an example I recently started looking for an off-market deal in Byron Bay where I live.
It took a while to find some, but once I did, I ended up with more to choose from than I could possibly take on.
Sometimes It’s worth knowing exactly what you want and just asking around. It can often work better than looking online and waiting for something to come up that has more competition.