Tuesday, September 8, 2015
How To Get Started In Office Rentals
Office spaces are quickly becoming the next attractive investment in Metro Manila’s real estate. Data from Colliers International show that as of the last quarter of 2014, the Philippines’ office market boasts a stock of 6.99 million sqm worth of inventory, which will surge 36 percent to 9.52 million sqm by 2018.
Prices and rental rates of office spaces, especially in the metro’s key central business districts (CBD), are poised to increase over the next year, thanks to healthy demand and tight supply, while vacancy rate is expected to decrease further as more companies (BPOs, corporate offices, and small and medium-sized enterprises) open and expand, providing savvy investors another option to diversify their real estate portfolio.
However, just like any business venture, office rentals have potential pitfalls if one is not sufficiently informed. Global property portal Lamudi Philippines (www.lamudi.com.ph) lists down several steps to get started on renting out office real estate.
1. Know the Difference Between Office and Residential Real Estate
Commercial real estate—under which offices fall—is valued differently from residential real estate. They are usually more expensive and they incur higher real property tax (in fact, the assessment level for commercial properties can go as high as 50 percent of the property’s fair market value). However, because they are more expensive, it also means that the returns are higher, especially in capital value, as offices in Metro Manila’s prime CBDs are predicted to increase in value at least 9.7 percent year-on-year to 2016.
2. Not All Tenants for Office Real Estate Are Created Equal
In residential real estate, tenants have roughly the same requirements: bedroom, bathroom, living room, furnished kitchen, and amenities that are common in gated communities or condo estates. However, office tenants can be drastically different from one another. For example, an IT firm and a lawyer’s office may only have a reception desk in common. As a landlord, you have to adapt your office space to accommodate each tenant’s specialized trade. However, once you have found a tenant, most are willing to sign much longer lease contracts (usually 3 years) as moving frequently disrupts a business.
3. As a Landlord, You Have Different Responsibilities
As a landlord, you have to be ready to handle tax issues, maintenance responsibilities, and business permits related to owning office real estate. As your tenants will be businesses or corporate entities, it is imperative to issue them official and BIR-approved receipts; otherwise, they cannot declare the rent as an expense in their financial statements. In addition, offices are subjected to more stringent fire-safety inspections and any violation, however small, carries a hefty fine.
4. To Find Tenants, You Need a Commercial Real Estate Broker
Finding a corporate tenant requires a specific skills set on the part of the real estate broker. While tenants of residential properties have basic needs (bedrooms, bathrooms, kitchen, and living room), a corporate client will have very specific needs and matching the property with the right tenant means more time and effort on the part of the broker to advertise and prospect clients for the property.
5. Pick a Great Location
In office real estate, the importance of location cannot be overemphasized. This is because corporate tenants choose prime locations that are close to their clients, can be easily reached by their employees, and give their business a prestigious address. In addition, the local government attracts businesses by offering incentives so it is important to pick a city that’s business-friendly.