What Makes a Commercial Property Easy or Difficult to Resell?

Before buying, consider who might want the property when you eventually sell.

Could it appeal to an investor looking for rental income? An owner-occupier who needs premises for their own business? A company looking for a long-term asset? Or only a narrow group of specialised buyers?

The more specific the property is, the more important it becomes to understand its likely buyer pool.

For example, a unit suitable for a broad range of office users may appeal to different types of buyers. A highly specialised industrial unit may be suitable only for businesses with particular operational requirements.

Neither is automatically a bad investment. The important point is understanding who your future buyers might be and whether there is likely to be demand from that group.

A well-known district can help attract attention, but the district name alone does not determine resale appeal.

Consider the property's immediate surroundings, accessibility, visibility and suitability for its intended use.

For an office, access to public transport and the quality of the building environment may matter.

For a retail unit, frontage, foot traffic, visibility and surrounding businesses can influence demand.

For an industrial property, loading access, ceiling height, floor loading, approved use and transport connectivity may be more important.

Two units in the same building can offer different propositions because of their individual characteristics.

When evaluating location, ask yourself: Does this particular unit meet the needs of the people who are most likely to buy or occupy it?

Tenure can influence both the buyer pool and the price a future buyer is prepared to pay.

Freehold properties may appeal to buyers who value long-term ownership. However, the premium paid for that tenure must still make sense relative to the property's income, location and other characteristics.

Leasehold properties require closer attention to the remaining lease. A property with a shorter remaining tenure may face a different set of buyer considerations from one with a substantially longer lease.

The impact depends on the property, its use, the buyer's objectives and the financing or ownership requirements applicable at the time.

Do not assume that a freehold property will always be easier to resell, or that a leasehold property will necessarily be difficult to sell.

Instead, consider how the tenure may affect the next buyer's decision.

A property's physical characteristics can either widen or narrow its potential market.

A unit with a practical layout and flexible use may appeal to more prospective occupiers than one with an awkward configuration or highly specific requirements.

For commercial and industrial properties, consider:

• Whether the floor area suits typical business requirements.
• Whether the layout makes efficient use of the space.
• Whether the unit has suitable access, frontage or loading facilities.
• Whether its approved use and relevant building restrictions suit prospective occupiers.
• Whether the physical condition would require substantial renovation or fit-out.

A larger unit is not automatically better, just as a smaller unit is not automatically easier to sell.

The key is whether the property's size and configuration match the needs of its likely buyers and occupiers.

A tenanted property can be attractive to investors because it offers an existing income stream.

However, a future buyer will want to understand the quality and sustainability of that income.

Consider the tenant's business, the remaining lease, the rental rate and whether the current rent is broadly supportable by market conditions.

A long lease may provide greater income visibility, but it does not remove every risk. A future buyer may also question whether the rent can be maintained when the tenancy expires.

An owner-occupier may evaluate the property differently, focusing more on whether it suits their business requirements.

This is why it is important to understand whether your likely exit depends mainly on selling to another investor, an owner-occupier or both.

Rental income can strengthen a property's appeal, but it should not be the only reason someone would want to buy it.

Even a well-located property with a good tenant can be difficult to sell if the asking price is not supported by the market.

A future buyer will compare your property with other available opportunities, recent transactions where relevant, rental income, tenure and the overall cost of ownership.

If your asking price assumes that every favourable feature deserves a premium, buyers may simply look elsewhere.

When estimating resale potential, consider the price at which the property might realistically attract interest, not just the price you hope to achieve.

You should also account for transaction costs and the possibility that market conditions may change during your holding period.

The aim is not to predict the exact future selling price. It is to avoid building an investment strategy around an overly optimistic exit assumption.

An exit strategy does not mean you must decide exactly when you will sell.

It means having a reasonable idea of what would make you sell, who might buy the property and what conditions could influence that decision.

For example, you might intend to hold the property for rental income over the long term. Alternatively, you may plan to sell after a particular tenancy period, once your investment objectives have changed, or when the market offers an appropriate opportunity.

Your intended holding period should influence how you evaluate the property today.

Ask yourself:

• Who is my likely future buyer?
• What features would make this property attractive to them?
• What could make it less attractive?
• Does the rental income justify the price I am paying?
• Am I comfortable holding the property for longer if the market does not support my intended selling price?

If you cannot answer every question with certainty, that is normal. The purpose is to identify the assumptions behind your investment and understand the risks involved.