It’s tough to decide when it comes to buying a commercial property. The usual hotspots are having prices which are too hot to handle. As for whether it’s worth the price we pay or not, let’s just be honest. The reason why prices continue to go up is because the rental could support the growth or the other way round. However, both rental and prices are supported by the business that the owner or tenant is doing and there’s always a ceiling to this. No one can keep increasing the price of their noodles just to cover ever higher rentals yeah. One day, the whole thing will collapse.
This brings us to these few questions that we should answer with some due diligence.
Time is gold. Remember this famous quote? If we look back at hotspots of today, there are a couple of reasons why they would become hotspots in the future. What’s the population growth like? When we drive around the area, are there huge residential units which will provide the business with the customers it needs? Are more developers looking to build within the same area? Are there other supporting amenities nearby? For example, offices, education institutions, hospitals and even a regional mall? All these would help us to understand if we buying into a potential hotspot for the future instead of paying way too much for a hotspot today.
What is it for? Do we know the potential business that we would like to do? This is extremely important because a restaurant serving great food will be popular whether it’s in a shoplot (there’s Facebook today!) or located inside a mall but if it’s inside a mall, it will need to follow all the mall’s guidelines which includes even opening and closing hours! If I am the customer, I would like to drive over to my favourite restaurant, park along the road and walk in to order. I would not want to drive to the nearest mall, find a car park space, walk a few floors to my favourite shop and then pay for parking. One word? Convenience. Remember to know your business before deciding!
Potential capital appreciation wise, anything on a land is going to be worth more. We can refer to many advanced property markets of today to understand. In fact people are staying further away because prices are growing beyond what they could afford. This is why when areas within the city centre increase in price, areas further away would soon follow. This is unlike retail units within a mall which is usually leased. If the retail lot was purchased, then it’s important to know if the mall is extremely popular or just another run-of-the-mill.
Flexibility of purpose. A shop-office could be used for many other types of businesses versus a more limited number for retail lots. One very good example would be budget hotels, especially nowadays when business travellers (usually SMEs) wants just a clean place to stay instead of paying expensive prices for a 4-star or a 5-star hotel. It’s a difference of staying a few nights versus just one night. A retail unit within a mall would very much depend on the size too. Businesses which would be run would have to depend on the size of the unit as well.
Remember that famous restaurant serving lots of customers when the whole row of other shops are closed after office hours? Yes, I have been to many and these famous restaurants are happy that everyone else has shut down after office hours because they could then put tables and chairs even long the corridors of all these other shops. There’s one particular restaurant with up to 100 tables in PJ. This cannot happen within a retail lot in a mall.
Last but not least, understand the purpose because sometimes a retail lot within a mall may better serve the purpose. As for some reasons stated here, I think there are reasons why shop-offices continue to flourish even with the number of increasing malls. By the way, failures of commercial properties happen whether it’s shop-office or retail lots in malls yeah. Please do due diligence before signing. Happy thinking.
written on 3 June 2018
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