How To Identify A Commercial Property Development Site
So you’ve made the informed decision to develop a commercial property. This is usually driven from one of two factors, either you have property suited to future development, or you have a use that must be accommodated. The question you now need to ask yourself: where and how?
One of the most important considerations for any business is its location - so what are the key factors that make a great position for your commercial property development?
Market trends and economy
Just as in residential markets, there are property market trends when it comes to commercial sites. So you’ll need to consider property value over time, rental rates, vacancy rates, recent sales, and absorption rates. Due to these uncertain times, it’s important to consider these factors in both high and low periods. It’s also important to note that while we are still navigating our way out of a recent pandemic, there is great scope for growth in commercial property.
With this in mind, be sure to understand the local economy and state of the market for the location of your commercial site and asset class. Along with general property and economic trends, take the time to research retail spending, unemployment rates, population growth, infrastructure investment, other future proposed developments in the surrounding area, and local inflation indexes.
After all, these are things that will heavily impact the overall value and future success of your commercial site.
Now, while trends are certainly important, they aren’t the only research you need to do. When you have a location in mind, ask yourself these questions: how much traffic does the site see, and how much access does that traffic have to your site? Is there public transport nearby? Are the appropriate amenities accessible to the site? What are the zoning regulations? What is your target demographic and are there other facilities nearby that might impact your site, for better or worse? What is the demand for your intended supply?
And perhaps the most important question: does the cost of this location justify your intended development?
The physical traits
The size of the site makes a big impact on how the space can be used. Additionally, if the lot is irregularly shaped, even if it is large, this can cause issues if you’re hoping to use it most efficiently. So ideally, you’re looking for a large, rectangular site - and you want to make sure that the zoning we mentioned before allows for your plans. Research holistically, and not just piece by piece, to avoid these pitfalls.
Intended use and occupancy are vital to the overall success of a new development. Is this an asset and project that you are simply going to “spec build” due to supply and demand factors for the planned asset, or is the development going to be underpinned by a pre-commitment from an intended tenant. The answer to this will impact your financing requirements and parameters, and how you will build the asset. For example, if you are spec building a brand new facility you want to ensure it is built with flexibility in mind and will meet the needs of the masses, financing will require more capital input from the developer. Alternatively, if you have secured a tenant on a long term lease then this will require a purpose built facility to meet the requirements and obligations of the tenant and developer. This long term lease that you have in place will also assist when applying for your finance.
Other physical characteristics of a site such as slope, plot ratio, soil and environmental conditions are additional factors to consider, as they will all play into the calculation of site development value.
Let’s talk legalities
Lastly, we need to discuss legalities. These are different depending on the location and the values of those who live within it, so be sure to read up on the council priorities and policies. If your plans fly in the face of the strategy for the local council, you’re beaten before you begin.
Regulatory law isn’t the only thing you’ll want to look out for, however. Be sure to look into the title you’re acquiring in order to establish that it has no outstanding encumbrances, easements or notices and that the person you’re buying from has all the necessary rights to be selling to you in full. And, as with every legal document, be wary of loopholes - have someone with expertise in the area look over whatever contract or paperwork you’re being presented with.
So, what now?
All the factors, questions, answers, and research suggested in this article are just the tip of the ice berg, but here’s the bottom line: do your due diligence. Rather than tackling all of this on your own, it is crucial to work with an expert who understands every step you need to take for commercial property development success.
We can help
At Broadway Property, we support you every step of the way through your commercial property development process.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property