Doesn’t owning an office property sound fancy? With the potential income from tenants how can it not be considered a lucrative property? However, like everything else, it has its downsides. The process of managing an office building comes with its own challenges and is not guaranteed to be profitable.
Regardless, whether you are a beginner or a seasoned investor, you need to have a strategy in mind when pursuing the ownership of an office building. What do you want to do? Make your investment into an enterprise that is sustainable and profitable. During this blog, I will share with you the steps you need to take to make your commercial property more profitable while avoiding common problems.
Knowing your market is one of the most crucial aspects of operating an office building. Understanding both the competitors and the tenants goes a long way.
Every office building serves a certain type of tenant. It could be businesses such as law firms, tech startups, or even coworking spaces. By knowing who the tenants are, you can provide services that propel strategic demand. For instance, law firms might prefer more private office setups than open floor plans and high speed internet.
Recommendation: Don’t forget to do an annual tenant survey to understand what their level of satisfaction is and what their future needs are.
This enables you to know which areas of improvement matter to them greatly, thus putting your efforts in the right places while also improving leases renewal rates.
Use Competitors as Benchmark
You are not the sole landlord fighting for tenants for your property. Look at who your competitors are and what they sell from rental rates to additional facilities. Am I charging the right amount? Do competitors have enticing features such as a gym or easy lease terms?
You know your position now it is time to think out the box. For instance, if all your competitors lack eco-certification, then think of going green (LEED certification) so you can capture the attention of eco-friendly tenants.
Cost Reduction Strategies
Profitability is not only in revenue, it is also, and most if not all of the time, in expenses. Here are some places where you can significantly reduce your costs.
Audit Your Energy Use
Electricity bill is one of the biggest costs in an office building. With the implementation of energy-efficient lighting devices, better HVAC systems, and smart thermostat electricity consumption can be reduced. That’s not all. You should also think about operational cost reduction by implementing solar panels or energy recovery systems.
Reassess Service Contracts
What has been the last time you went through your service contracts? Cleaning, security, and maintenance contracts are among the most flexible and can be placed with more favorable terms. Get other suppliers’ quotes and compare them to guarantee you do not pay too much for basic items.
Lower Cost of Vacancy
These vacant office spaces are costing you money. Instead of letting them sit, convert them temporarily. For example, you may turn unused rooms into short term event spaces or coworking offices to make some money while looking for long-term clients.
Increase Revenue
Reducing costs is important, but gaining new sources of income is equally important when it comes to maximizing profits.
Add More Services
Upgrading the building can significantly improve the rates. Some features to consider are high-speed internet, fitness centers, or conference rooms. Tailor the features based on the needs of your tenant base.
Leverage On-Site Parking
If the office building has parking spaces, sell them. Reserved parking for a fee is a valid option. Also consider charging for electric vehicle charging.
Consider Mixed Use Developments
Your office building should not be limited to office space only. Depending on the zoning rules, you can add retail shops, cafes, or residential apartments which can increase revenue. This type of properties will appeal to a wider range of tenants making the building more attractive.
Retention Of Existing Customers
To make sure that a building is profitable, it should be fully occupied and tenants retention helps achieve that.
Foster Good Relationships With Tenants
With satisfied clients being tenants, it’s easier to keep them long-term.
Place an emphasis on proper communication, timely maintenance, and most importantly, a smooth leasing process. Loyalty can be nurtured with certain promotional offers like holiday gatherings or subsidized facility service prices.
Provide tenants with the option of flexible lease contracts
New aged tenants, particularly new businesses, appreciate flexibility. To assist in fulfilling the demands of your clients, consider implementing short-term leases or multi-level rent agreements.
Resolution of issues from a proactive stance
Effective complaint resolution and prompt maintenance can greatly reduce tenant displeasure. Create a specific portal or use tenant management software that allows users to log and monitor problems—and progress on them. This increases productivity and trust.
Complete a work order in property management
A poorly designed property management system can drastically decrease your profits. Being efficient is most important.
Employ property management software
There has been a major shift in how landlords handle their properties with the advent of technology—administration, maintenance, and even accounting. tools like AppFolio and MRI Software help in the automation of several processes including: gathering rents, logging service calls, and creating report documents.
Build a competent staff
Good property managers and competent maintenance personnel are excellent investments. Efficient use of resources ensures the building runs, to the tenants’ satisfaction, unlocking wasteful spending on damages.
Adjustable expenses
The most effective expenditures for the longterm can be easily defined, therefore do not shy away from reasonable and planned capital expense improvements.
Alter common areas
These areas include lobbies and hallways, or outdoor areas. Such spaces are of utmost importance for first impressions.
The space that is well designed increases the value of the building and makes tenants happier.
Sustainability It Is
Upgrades such as new energy-saving windows or LED lights portray a commitment to sustainability and also earn green certifications. Some of these upgrades can lead to tax credits and reduced operational costs as well as make the property more appealing.
Financial Planning
Meticulous planning is what makes sustainable profits possible.
Budget Like A Pro
Plan in detail; account for maintenance cost, property insurance, and other unpredictable costs. Having a contingency fund ready allows you to deal with surprises whilst avoiding disruption to cash flow.
Regularly Track Performance Indicators
Always have a record of how your building performs financially over time. Important numbers such as Net Operating Income (NOI), the occupancy rate, and tenant satisfaction all provide the necessary data on what needs to be improved.
Case Studies
Consider the following real world scenarios to illustrate the effects of implementing optimization strategies.
Energy Saving In Practice
The owners of a mid-sized office building in Chicago spent $80,000 on upgraded lighting and HVAC to more energy efficient systems, saving $30,000 on energy bills each year. Within three years, they received a positive ROI on their investment. The building’s property value also increased because they received an energy savings certification.
Revenue Through Amenities
A fellow office building in Austin added a coworking lounge and a fitness room, raising average rental rates by 15%. Their capital outlay was $50,000, but they were able to gain an additional $150,000 in revenue during the first year.
Attaining Sustained Profits Through Ownership of Office Buildings
Property ownership of an office building might not be so “fashionable” in the eyes of the general public, however, with some well-placed tactics, it can be extremely rewarding. Know your customers, analyze the market competition, manage the costs, and set up multiple revenue sources.
This will require thinking in the long-term. What will differentiate your building from the competition are: capital improvements alongside streamlined property management and sound financial strategies.
Profitability is not an overnight wonder. With perpetual inputs and intelligent spending, an office building can be transformed into a cash generating property after a few years.
