5 reasons vacant commercial property could make you more wealthy

We know what you’re thinking: Buying a vacant premises in the commercial property market is surely going to cause all kind of trouble, right? No rent, no outgoings paid, no guarantee of the premises being filled anytime soon. But what most investors miss is the opportunities to make far higher returns when a property is purchased vacant.

Buying a vacant commercial premises gives you plenty of opportunity to see skyrocketing wealth:

1. Lower purchase price
2. Value-add opportunities
3. Opportunity to conduct CAPEX projects
4. Flexibility
5. Potentially lower risk

There is of course a caveat. A similar one to what an acrobat juggling flaming swords would say to a crowd of impressed, open-mouthed spectators: don’t attempt this without experience or expert supervision.

That said, let’s get into the five ways buying a vacant commercial property might make you more money than an occupied one.

1. Lower purchase price

One benefit of buying commercial real estate that much of the market might consider “risky” is that there’s generally less demand for an empty property. And less demand for a product, service or indeed commercial asset, inevitably means a lower price tag attached to it.

A vacant property gives you bargaining power with the vendor. Outgoings aren’t being paid (which is the usual arrangement for a net lease) and there’s no guaranteed income. Furthermore, the property – especially if it’s been vacant for some time – might’ve seen better days. Negotiating with the seller to have CAPEX works completed, like a new air conditioning unit or even a partial refurbishment, or even having general maintenance and gardening done, can save you a tonne before you’ve even taken ownership. But better yet is your ability to potentially drive the purchase price down.

This should make you realise how much value a tenant adds to a commercial real estate.

Big league commercial real estate, in the tens of millions of dollars, could see its value sink if there’s no tenant occupying it. But for the astute investor willing to get their hands dirty and apply a significant amount of property nous to the transaction, that is a huge value-add play.

And therein lies our next reason why you might consider buying a vacant commercial premises.

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2. Value-add opportunities

Undoubtedly one of the best reasons to buy a property without tenants occupying it is the massive opportunity for an experienced investor to add value.

If you can lock down an ironclad leasing arrangement with a solid tenant, and perhaps even start the discussions in your due diligence phase, then you’re halfway there to reaping impressive value-add rewards.

A few years back, we made one of our most strategic value-add plays. We purchased an industrial premises occupied by a tenant (the multinational mining equipment company CAT) with only nine months remaining on their lease. We didn’t shy away from the very clear challenge in front of us: either extending CAT’s lease or finding a new tenant fast.

We knew the market, but most importantly we knew the unrealised value of our newly purchased premises, which was one of the best assets in a highly sought-after location.

We created a specific strategy to understand the tenant’s every desire and need. We understood the costs involved to attend to those needs and put our offer to them on the table. We then negotiated a new lease with CAT for another ten years. The result of extending that lease? We doubled our investors’ money.

3. Opportunity to conduct CAPEX projects

Not only does a vacant commercial property give you a chance to find a tenant which will skyrocket the property value. But it gives you the chance to upgrade the premises – interior or exterior – without troubling an existing tenant, who would otherwise need peace and quiet to carry out their day-to-day.

Think about your own home. If you were going to renovate it, and I mean really gut the thing to bring it up to a high-quality standard, the last thing you’d want is to be occupying it during the reno. Picking paint chips out of your morning coffee, swatting the dust and debris floating around your living room or plugging your ears with your fingers to avoid the grinding of construction machinery sounds like a nightmare.

The same goes for a tenant of a commercial premises.

So, if it’s vacant, you’ll have all the time you need to complete those capital expenditure projects that might help the property value defy gravity in the future.

4. Flexibility

We’ve always loved being a dynamic, nimble property investment company. The ability to turn on a dime, at a moment’s notice, with no public shareholders, few in-house departments and hoard of employees to seek permission from. For us, if a strategy improves our investors’ bottom line, then we’ll consider it. And that’s how it should be for property investing, too.

When you don’t have a tenant already installed in the premises, you have room for flexibility.

For example, an industrial property might not need to remain entirely warehouse, and perhaps you can allocate a solid portion of the net lettable area to office space. That’s something we noticed industrial tenants preferred when we acquired our $78.8-million industrial portfolio (which we sold in 2022 for 38 per cent uplift).

An empty property is begging for creativity and flexibility. Providing you work within zoning and council restrictions, it’s a blank canvas for you to recreate however you ­(or better said, the tenant market) think is most ideal.

5. Potentially reduced risk

If you’re still with us, you’re probably doubting any original concerns about how a vacant premises might make you more prosperous than an occupied one. So, it shouldn’t be a surprise that we claim a vacant property might even present lower risk.

Buying a property with a tenant already in it might have problems for some unlucky or unprepared investors. Those investors are the ones who don’t ask the proper questions to the existing occupant, who don’t properly analyse the tenancy schedule and existing leasing arrangements, who don’t feel like anything could go wrong with a tenant whose already occupied the property for several years.

Assume nothing in commercial property investment. An existing tenant might cause issues for you down the road if they’re not of the right calibre or quality that the property demands.

So, buying a vacant property avoids this risk. You can start fresh, a clean slate, and ensure the next occupant is one that your asset deserves.

How do you buy a vacant property safely?

We’ve mentioned that buying a vacant commercial premises is an exercise best performed by experienced investors. Which is why we offer investors the chance to participate in commercial property investment alongside us.

A commercial property syndicate combines the capital of multiple investors – from SMSF investors to ultra-high-net-worth individuals to institutional investors – to go after big league office, retail and industrial real estate.

This is property that they’d otherwise be unable to buy on their own. Or they’d prefer to leave in the hands of an astute commercial property investment company that has a long track record of success.

If that sounds like you, get in touch with us. Our investments are exclusively offered to sophisticated and institutional investors, and with both yield- and capital growth-focused investments on offer, we’re certain we can find the right syndicated opportunity for you.