Commercial property investors should use their festive season profits for renovating, maintenance planning, alternative energy sources, provision for bad debts and health and safety management, says FNB Property Finance.
Businesses that own commercial real estate and operate from their premises should consider using festive season profits to offset high maintenance costs which now account for over a quarter of operating expenses.
Owner-occupied commercial property deals are normally structured over a ten year finance term. This enables business owners to focus on repaying their loans without worrying about annual lease increases which often impact on profit margins.
Attie Anderson, Head of Business Lending for FNB Property Finance, says “Although owning the premises places growing businesses in a better financial position in the long-term, this comes with a huge responsibility to ensure that the buildings are always in good running order and maintained to the highest quality of standards.”
As a result, maintenance places a financial burden on the building owner and can have negative cash flow implications if the business fails to plan properly.
“Given the escalating costs resulting from municipal rates and taxes, possible interest rate hikes, electricity tariff increases and the daily management of the buildings, it makes financial sense for businesses to use surplus cash to improve building efficiency.”
Anderson offers a few guidelines on how owner-occupied commercial property investors can maximize their festive season profits:
Many business owners acknowledge the importance and positive impact of office refurbishments on staff and the business as a whole, but this is often low on the list of budgeting priorities. Using festive season profits can be the best way to renovate the building without worrying too much about the costs.
Commercial property owners often appoint external service providers to manage the building. This may be the ideal time to conduct thorough maintenance checks and replace or repair broken items and fixtures to avoid costly surprises. Tackling maintenance issues while the business has cash available will help to ensure that funds reserved for building emergencies are not misused. This will give business owners peace of mind for the rest of the year.
Alternative energy sources
Power shortages and electricity tariff increases are one of the issues that keep business owners awake at night. Owner-occupied commercial investors are more commonly impacted since the costs of installing alternative energy sources would come from them. Therefore, investing in a generator or putting down a deposit to install solar panels would make financial sense and benefit the business in the long run.
Planning for bad debts
Businesses that operate from their premises often lease a portion of the building and use the rental income to repay their loans. However, when tenants default or vacate, this puts financial pressure on the property owner. Anderson advises businesses to also consider saving festive season profits to account for rental arrears or vacancies.
Health and safety management
Regulations in the commercial property industry are becoming more stringent. Businesses should constantly ensure that their buildings comply with the occupational Health and Safety Act of South Africa. If there are costly health and safety inefficiencies, such as fire risks, this would be the best time to address them.