4 Ways to Improve Return On Investment in CRE
3 min read.
Have you ever been asked by your clients, “How can I enhance my property value”? When optimizing Return On Investment (ROI) in commercial real estate (CRE), it is essential to go beyond conventional practices. Below, we outline four crucial approaches to preserve and augment ROI in CRE.
Strategic Rent Management: Contrary to the misconception that reducing rent amounts attracts tenants and improves cash flow, a more sustainable strategy involves implementing a thoughtful rent management policy. A steady and sustainable income stream is ensured by aligning incremental rent increases with inflationary trends. This approach balances competitive pricing and maintaining perceived property value, as informed by thorough market research on rental trends in the area.
Cost Reduction through Professional Underwriting: Collaborating with seasoned professionals to underwrite a client's asset unveils hidden opportunities to reduce costs and positively impact the bottom line. A comprehensive analysis covering operational expenses, maintenance costs, and vendor contracts can identify areas of inefficiency. Negotiating improved deals with vendors and implementing energy-efficient solutions, as recommended by professional underwriters, contributes to substantial cost savings and enhances overall operational efficiency, directly impacting ROI.
Value Addition to Your Asset: Elevating the overall value of a property significantly enhances its attractiveness to potential tenants, forming a solid justification for rent increases. Engaging a professional consultant for a comprehensive underwriting of the asset can uncover opportunities for aesthetic improvements, technological upgrades, or space reconfiguration to meet evolving tenant needs. Proactively enhancing the asset positions clients to command higher rents, directly impacting ROI positively.
Diversification and Risk Mitigation: Rather than concentrating all investments in a single property or asset class, spreading the portfolio across diverse commercial properties or geographical locations enhances resilience. Investing in various property types, including office spaces, retail outlets, and industrial facilities, creates a more robust portfolio. Diversification ensures that different sectors respond differently to economic trends, maintaining the overall stability of the investment, and considering properties in various locations safeguards against regional economic downturns that might impact a single geographic area.
Maximizing ROI in CRE demands a strategic and holistic approach. By embracing these four critical approaches, commercial real estate investors can navigate the market's complexities and unlock the full potential of their investments.
Reference
Roi for commercial properties: GTA Commercial Real Estate. InTrust Commercial Real Estate Brokerage Inc. (2022, December 21). https://intrustcre.com/real-estate-roi-for-commercial-properties/
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