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How do commercial property renovations work

Discussion in 'Commercial Property' started by cdchi1, 10th Nov, 2015.

  1. cdchi1

    cdchi1 Well-Known Member

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    Elwood
    My mother owns a small commercial property in Smith St Collingwood.

    It is currently leased by a religious institution which uses it as an opportunity shop.

    The current annual rent is around $43K gross.

    The place next door (and attached) is the popular St Crispin restaurant - if you watched the HotPlate this year, my mother's property sometimes popped up when they zoomed to the StC frontage during an episode :)

    The land sizes are pretty much identical. But my mother's property is very rundown now.

    St Crispin on the other hand is fully renovated and so the rent is significantly more than what my mother gets...around $80K + GST + outgoings. The property in 2014 sold for $2.45M and I expect that's a lot more than what my mother's place is worth due to the higher rent, attractive long lease and of course its condition.

    So got me to thinking that given Smith St is fashionable once more, maybe its worthwhile now renovating the place to get the sub par rent up to market value and to add value to the property.

    I was wondering how it works with renovating a commercial property to achieve a signicant increase in rent? Do you just gut it out and leave it as a blank slate with the new tenant worrying about it based on what business they are running, or is there a lot more to it, ie do you choose what business you want there and renovate accordingly which I suspect would cost a heck of a lot more. Or does the potential tenant tell the Landlord what they want exactly and the landlord pays for it with the rent and lease term reflecting this?

    Thx for any pointers.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Not aware of the location or the property however as a general guide:
    • Lessor provides base building services (including toilet facilities as required to building code)
    • Ceilings, lighting, air cond/ventilation to open plan
    • Power to perimeter/internal columns
    • Phone to MDF/IDF
    • NBN/Fibre by tenant (lessor approval required)
    • Floor finish - initial carpet by lessor (unless negotiated otherwise)
    • Fitout by tenant
    • Cooking exhaust, roof penetration, motors and ductwork by tenant (unless it is a common service, then by lessor)
    You would prepare a 'shell' for the type of tenant that you seek eg office tenant wants to move in, throw in a few partitions and desks to start working whereas a retailer is more likely to commit to a higher level of fitout including specialised displays/lighting, gondolas, wall cladding/slatwall, POS, registers etc vs a foodie who needs a full commercial kitchen, dining area, additional toilets etc.

    Best to consult with a few commercial agents as to who is looking and whether you should be going generic or targeting specific tenant categories.
     
  3. D.T.

    D.T. Adelaide Property Manager Business Member

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    Check with commercial PMs in the area too see where the demand is.

    One option could be to provide an empty shell the offer a prospective tenant an allowance towards setting it up how it'd suit them
     
  4. cdchi1

    cdchi1 Well-Known Member

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    Thanks guys, the property is managed by Knight Frank so I'll have a chat with them.
     
  5. willair

    willair Well-Known Member Premium Member

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    That's what most do in our local area,may also pay to add on the cost of fire safety if the property needs a upgrade into a fire sprinkler system for fire protection..
     
  6. hobo

    hobo Well-Known Member

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    We opened a new retail store about year ago and it went exactly as @Scott No Mates above detailed - empty shell provided by landlord, with certain specifications negotiated along the way (eg we made certain things easier/less fussy for them during the build, and in exchange negotiated an upgrade to the floors to polished concrete).

    I realise you are talking about a reno, not a new build, so not sure how useful this is, but thought I'd mention it anyway.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    The point of a refurbishment is to bring the property back to as near a new condition (if desired) to achieve the best possible outcome/attract the best tenant.

    Expectations of retail, commercial and industrial space had changed dramatically in the last 20 years along with the technologies used eg fax vs email, cash/credit card vs EFTPOS, halogen vs LED lighting.
     
  8. cdchi1

    cdchi1 Well-Known Member

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    Cheers, yeah the property needs ALOT of work. Basically it used to be used by my late father for his retail business for about 20 years up until around 1990 at which time the business was sold due to his ill health. Nothing has been done with the property since he first purchased it way back when so its quite rundown.

    Last year the floor was playing up...did a quick fix for $5K, but quotes on a proper fix just for the floor ranged from $35K - $ 55K. So a full refresh of entire property would cost a helluva lot so need to do a bit of an opportunity cost analysis. If can add $30-40K annual rent though which would significantly increase resale value, might be worth it.
     
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    As a significant period of time has elapsed, it may be worth reviewing the LEP & DCP to consider whether redevelopment is an option ie has the FSR increased or zoning changed to allow muli-storey/second level, expanded uses, mixed use?
     
  10. Handyandy

    Handyandy Well-Known Member

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    Hi Scot

    Just to add to the info the property being discussed is an older terrace style shop with unit above.
    stmarks.png

    What floor needed fixing, the ground floor or the first storey level?

    On the improvement side maybe replace the shopfront with a more modern type of shopfront. Even so, as has been suggested, any mods would need to be desirable for the prospective higher paying tenant.

    Cheers
     
  11. cdchi1

    cdchi1 Well-Known Member

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    Hi Handy

    The ground floor was the one reported to need urgent attention. Though I wouldn't be surprised if first storey floor needed work as well. Roof needs reworking also, keeps springing leaks.

    The only thing going for it atm thats probably unique is it has a conveyor belt system at the rear that goes between floors, used during our business for moving 120+ piece dinner sets, back breaking otherwise.

    That graffiti has to go too I guess :D
     
  12. Foxy Moron

    Foxy Moron Well-Known Member

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    From the street photo it looks like a fabulous project to sink your teeth into. Building has heaps of street appeal. I think your thoughts are tracking down the right path. I just googled Happy Valley's website (bookstore 2 doors down) and their site shows what your ground floor 'shell' could look like at the finish....very attractive for a boutique or specialty retailer I would have thought. The conveyor belt adds a nice touch as well. Do the work and you get a $2m plus property. Very envious of your position! Good luck with it.
     
  13. cdchi1

    cdchi1 Well-Known Member

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    Thanks Foxy, will check out the other store you looked at.

    Smith St was awesome street in the 70s/80s but then went downhill when plenty of young troublemakers dealing drugs started congregating there - we actually helped a police sting from the store once to catch them. The bloke we sold the business too didn't last long unfortunately for him.

    However the place has really revived it seems. Luckily we didn't sell the property back then.

    Theres another store nearby (6 stores down) that looks amazing inside and is pulling in $158K +outgoings and GST rent pa. 284 Smith Street, Collingwood, Vic 3066 - Retail for Sale #501724469 - cbre.realcommercial.com.au