SUNDAY STAR TIMES -  Firms look to rent, not buy, premises.  Businesses that own their own premises should consider selling the property and renting instead.  Will Blake, the valuation director of Christchurch-based real estate company Simes, said commercial property values had risen so much in recent years that it was now questionable whether owning your own business premises was the best use of capital. “There’s certainly been a trend towards businesses becoming owner-occupiers over the last few years and in most cases that’s been a very clever move for them to make,” Blake said. “There’s been a substantial increase in the value of commercial and industrial properties, but if you consider the relationship between their rent and their market value, rents are at historically low levels. “A few years ago business owners might expect to pay rent equivalent to 10% to 12% of the market value of their premises. But these days it’s more likely to around 7%,” he said. As a result, he believes more business owners will start looking at realising the capital gains in their premises by selling them, and renting instead.

One of the things property owners would need to consider in making that decision was the future trend in capital values and rents. “That’s the $64,000 question,” Blake said. “There has been very strong capital growth and as a result, yields have come down. As a valuer I’m reluctant to say capital values won’t keep improving, but I’d be reasonably confident saying we’ve had the bulk of the capital growth for the time being. Traditionally the real estate market has had cycles where it’s had strong growth and then it flattens off.” Proprietors could maximise their return by selling the property on a sale and leaseback arrangement where they stayed in the premises and leased them from the new owners, which could make the property extremely attractive to investors and help achieve a good price. “There are a lot of people who want to be passive investors and they range from mums and dads through to major institutions. So if the lease is on reasonably favourable terms and it is a good secure tenant and the rent’s set at a fair level and not overcooked, then those properties are very, very valuable,” Blake said.

Business owners had to make a hard-nosed decision about how they could get the best return on their capital. In some cases, that might be from owning their premises. But in other cases they could get a better return by selling the property and reinvesting the money in their business. Blake said most business owner- occupiers in Christchurch tended to be users of industrial space such as warehouses and factories, with few office-based businesses owning their own premises. However in Auckland, there was strong demand for smaller strata titled offices in the CBD and fringe from small city businesses, according to Barfoot & Thompson’s commercial sales and teasing manager, Peter Churchill. “The demand from owner occupiers for strata titled space is significant, it’s a big part of our business,” Churchill said. Mostly the demand came from small privately owned companies with six or fewer staff, he said. “The owners basically treat it as a superannuation fund. It allows them to control their own destiny, especially at the good quality end of the accommodation game, because in the past, a lot of these guys could only get really good space in the city if they were subleasing it. So it was short term accommodation which meant it wasn’t worthwhile investing in its fitout to lift their offices up to the standards they wanted.”