How much weight would you put into purchasing a commercial property in a flood prong area? If the property ticks all boxes except being in a flood zone ( based on council flood map), would that be a no-go in terms of acquisition? Would a property that is in flood zone but last flooded 10 years ago be a big problem? Would a property being in a flood zone stop bank from lending or cause lower value appreciation? If it’s only a factor, what percentage discount when purchasing, in general, would you be looking for?
I don't have clear advice but have found myself in the same situation as you a few times and in the end I pulled out - one in Sydney and another in regional QLD. Flood risk can add a real level of uncertainty that could affect development potential, resale and bank valuation. I found it really difficult to assess the risk, consequences and ways to mitigate pre-purchase. One thing to keep in mind is that flood maps do change - they're updated roughly every ten years. You could win and the flood zone moves away from your property or it puts you more underwater so to speak. You can apply your own views of how global warming will affect this - I would say if you are in a zone then it will likely expand. I would err on side of caution but that's my 2c.
When the building is full brick, on a slab & in an industrial zoning - what's to damage (other than washing out of the foundation material)? Most insurers that my broker has been dealing with throw in flood cover for non-flood prone properties, that's what it's worth in those areas. In flood prone areas, it's probably worth the quote or ascertaining that they'll cover it.
I'd place a significant amount of weight in any historically flood impacted property. Debt markets won't be very excited to bank a flood prone asset. Keep in mind that not all floods are equal. E.g. the 2011 Brisbane flood was very different to the 2013 Bundaberg flood.
as a rule of thumb i would avoid a property significantly covered by a flood zone. as a tenant i certainly wouldn't want to be wading through water or have stock damaged if it happened to be stored on the floor.
There is a difference between flood zone and risk. If I was you I would assess the real flood risk, then the decision is easier, likelihood x impact is easy if you can work out likelihood. Has it flooded? What type of flood? What mitigation exists? What are adjacent businesses doing? The zone is calculated from levels and models, and some 'margin'. So real risk rather than zone and the answer will fall out.
We looked into a great asset that has a similar issue, you need to look into insurance. This will help you find your answer.
You can also send a surveyor there to assess the true floor level on the block and the buildings. Most flood maps are +-300mm so if you get a surveyor on-site you can see the real floor levels. A lot of low risk flood zones will only get +-100mm of flooding in a 1 in 100 year event, so worth looking further into. Going from memory a floor level survey costs around $1000 so not unreasonable IMO.
I owned industrial units in a designated flood prone area for over 20 years, the river flooded once in those years and only affected 2 streets where it reached ankle depth. Our property was never affected. Worth while reading the archives of the local newspapers to read about floods in that area and how many properties were affected. Google 'Trove' where you will find all digitized newspapers, type in ''area? & floods'.
Thanks for your insight. I am guessing warehouses would not be as affected by flooding comparing to retails/offices?
The whole SE Qld is being flooded, whether it's flood zone or not.... my buyer's agent said she went shopping on a boat (Brisbane)
I've previously managed retail up in north coast NSW, these had a loft and a goods lift to relocate stock from the floor to the roofspace, absolute pain for the tenant to move the whole store & displays but it was better than facing a loss. Industrial is still impacted eg warehouse racking, plant & equipment which is not easily dismantled (coolroom, prep kitchens, cleanrooms, assembly benches), forklifts etc - these are generally the tenant's risk.
