Commercial property investors often use bank funding to purchase property assets, which is referred to as gearing or leveraging. When done properly, using bank funding can have a strong positive impact on investment returns.

To illustrate how effective bank gearing can be, we compared a cash purchase with a transaction that uses a portion of bank funding:


<table border="1" cellspacing="0" cellpadding="0">
<tbody>
<tr>
<td valign="top" width="426">CASH PURCHASE</td>
</tr>
<tr>
<td valign="top" width="426">Purchase price: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R20,000,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Monthly income: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;R200,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Annual Income: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R2,400,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Monthly expenses: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R58,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Annual expenses: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;R696,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Net monthly Income: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R142,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Net yearly income (excl. inflation): &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R1,704,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Return on Investment (Excl Capital Growth): &nbsp; 8,5%</td>
</tr>
<tr>
<td valign="top" width="426">Annual Capital Appreciation (est. 10%): &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;R2,000,00-00</td>
</tr>
<tr>
<td valign="top" width="426">Net Yearly Income (incl Capital Appreciation): R3,704,00-00</td>
</tr>
<tr>
<td valign="top" width="426"></td>
</tr>
<tr>
<td valign="top" width="426">Return on Investment &nbsp;(Incl Capital Growth): &nbsp; 18,5%</td>
</tr>
</tbody>
</table>
<table border="1" cellspacing="0" cellpadding="0">
<tbody>
<tr>
<td valign="top" width="426">BANK FUNDING</td>
</tr>
<tr>
<td valign="top" width="426">Cash component: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R 6,000,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Borrowing (70% Loan to Value):&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R 14,000,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Monthly Inst. (Prime rate 9% over 10yrs): &nbsp; &nbsp; &nbsp;R 253,352-00</td>
</tr>
<tr>
<td valign="top" width="426">Net Monthly Income: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;R 142,000-00</td>
</tr>
<tr>
<td valign="top" width="426">Monthly Shortfall Payment: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R 111,352.00</td>
</tr>
<tr>
<td valign="top" width="426">Total Yearly Shortfall Payment: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; R 1,336,224-00</td>
</tr>
<tr>
<td valign="top" width="426"></td>
</tr>
<tr>
<td valign="top" width="426">Return on Investment (capital growth - upfront capital investment - rental income and excluding inflation): &nbsp;27%</td>
</tr>
</tbody>
</table>
From the tables above, it's clear that the Return on Investment using bank funding is 27%, while the Return on Investment in a purely cash purchase is 18,5%. So, gearing the purchase of the building has increased the Return on Investment by 8.5%.

Note that this calculation does not factor in any rental income for first 3 years, &nbsp;as rental income is used to cover bond re-payments.

Ultimately, using bank funding alleviates cash flow pressures, which makes it an extremely powerful means of wealth creation. Of course, this is provided that the ratios err on the conservative side coupled with sound investment analysis.

Commercial Property: Is Bank Funding A Good Idea?

Thinking of investing in commercial property? Whether your budget is big or small, here are five tips to help you on your way:

1. Gauge&nbsp;the quality or underlying value&nbsp;of a building when evaluating a commercial property investment.

2. Establish whether the rental levels being achieved are above or below market. This will determine whether current yields are sustainable or perhaps could be improved.

3. Evaluate the covenant and strength of each tenant occupying the asset with a view to extending leases with those tenants that pay on time.

4. Invest in a specific niche or sector. Alternatively, a strategy could be to diversify and invest across the various sectors i.e. office, retail or industrial.

5. Know when to hold on and know when to let go. Ultimately, building a successful commercial property portfolio requires that the investor holds onto good investments and disposes of the troublesome or inefficient ones.

In order to gain exposure to investment opportunities in your area, we recommend engaging with a reputable, qualified broker.

5 Commercial Property Investment Tips

“We just got the deal! Our client needs to be operational in enough space for 60 staff in three months time!”

These are words often&nbsp;heard around the world in the transaction room at a property company. Easier said than done. &nbsp;Making good decisions when it comes to an office move can be tough when it comes to future space requirements including expanding or contracting a business’s staff resources.



This challenge is more a management issue than bricks and mortar, but once you enter into that 5-year commercial property lease, it can be painful and expensive to get out of it early. A simple strategy when addressing space planning is to think, plan, and only then act afterwards. We often experience large companies engaging the market, and perhaps even get into lease negotiations without having completed any basic planning for the business case. We like to take an advisory role when assisting the appointed project team. We try to slow the process down by encouraging the team to think and build consensus prior to evaluating existing market options.

As a company or division grows in terms of revenue and success, what impact could this have on future headcount and facilities requirements? What is the volatility or risk of future headcount projections? Asking management what they need is a good start. Then filter down to reality. What organisational culture objectives does the new facility need to meet to best support future success principles?

I’ve walked hundreds of office spaces over the past six years. Some businesses take great pride in their brand and values by proudly showing off their space, while for others this is not a priority. Impressive office fit outs are about colour, lighting and layout. All of these factors ultimately have an impact on employee productivity and both staff and client satisfaction levels within the space.

We recommend working with design professionals to source your ideal design and layout, wall/floor coverings and office furniture. Work with the project team and solicit input. Staff involvement on a number of employment levels generates excitement and an inclusive feeling, which may enhance office morale.

An optimal office location is vital to retain current key employees and recruit future ones? Establishing where a CEO or decision maker lives can also determine the parameters for a suitable location.

Try to establish suitable building characteristics that best support the business model objectives in place, bearing in mind current and projected cash flow and profit. Has the project team managed to agree on the capital available to invest in the property decision?

In these uncertain times, more time and crisper decision-making will ensure success. The days of waiting months for “The Board” to make the final decision when it comes to an office move are passing us by. The real wisdom we bring to your organisation is to plan, advise and think practically.

Planning an office move?

The most common source of profit in a commercial property investment is capital growth i.e. the increase in value of the property over time. This can be achieved in a variety of ways across the numerous property classes and is usually realised by selling or refinancing investment assets. Capital growth can be achieved via improvements to property assets, for example the rezoning and development of agricultural land. As cities expand, land outside the limits becomes increasingly valuable.



When looking at any commercial property location to buy, the biggest factor in whether it's a sound investment or not is usually the potential for capital growth. As a node evolves, the inclusion of better transit routes, infrastructure such as shopping centres, schools, sports facilities etc., enhance property values.&nbsp;Many techniques have been refined to high-return fixes by property speculators specialising in adding value to commercial property in a short time.

A less risky approach is to invest in commercial property via stocks on the JSE. Real Estate Investment Trusts (REITs) are generally considered to be great way to generate property returns without taking huge risks. This is true, but only in the sense that property is the underlying security. With a REIT, the owner of multiple commercial properties sells shares to investors - usually to fund the purchase of more properties - and then passes on the rental income in the form of distribution. The REIT acts as the landlord to the commercial property &nbsp;tenants, where the shareholders of the REIT get the income once the expenses of running the buildings are deducted.

If you hear of an opportunity that promises a ‘new way’ to make property returns other than buying low and selling high or collecting rent, you're probably being sold on the process of property investment rather than a new mechanism for making profits. Whether the ‘process’ is worthwhile nor not needs to be carefully assessed - and bear in mind that this won't change how money will be made or lost in the end.&nbsp;

&nbsp;

What are the returns on commercial property?

After reading numerous commercial property market reports for 2014, we may have got a little ahead of ourselves in calling the tough economic conditions a thing of the past. Although funding conditions continue to improve and a number of larger corporates are once again reporting healthy profits, we shouldn’t be lulled into having unrealistic expectations. Forecasting a swing back to a landlord-favoured market in the next 12-18 months therefore seems a little ambitious.



Business operators are rightfully concerned about the European debt crisis, the weakening Rand, our upcoming election, labour unrest, low GDP growth, rising municipal costs and continuing high unemployment. All of this uncertainty forces decision makers into a holding pattern in order to mitigate operating risk. Any growth or expansion plans are couched until there is sufficient clarity or confidence returns.

In uncertain times, the old adage about investing in property being all about ‘location, location, location’ still rings true. In the commercial property market, we're experiencing tenant relocation activity but in many cases those are simply pieces moving around the chessboard. Tenants are willingly relocating to nearby business parks with little or no growth in their space requirements. The reason behind these moves could simply be to take advantage of the opportunity to lower office or warehousing overheads. Increasingly, we're seeing commercial property tenants moving to upgraded or redeveloped buildings with greener features that offer cheaper operating overheads.

In terms of Johannesburg commercial property, tenants often relocate to avoid annual escalations, or to secure a superior building with the same rental price as their previous premises. B Grade commercial and industrial buildings in less attractive locations are certainly feeling the pinch and will do so for the foreseeable future.

In our experience, a useful relocation strategy is to study all relevant commercial property information available before entering negotiations. By having a good grasp of the market conditions and a comparable product available, you'll ultimately put pressure on the landlord to offer competitive terms. And, a partnership with a competent commercial property broker will go a long way to securing optimal lease terms on relocation.

Commercial property: are we still in a holding pattern?

Office relocations can be an exciting time for any business. However, moving addresses may also bring up certain challenges. One of these is making sure that your new premises stay attractive to your staff, so that you are effectively able to retain them.



In our experience, most businesses fit into the well-known "80/20" principle, where approximately 20 per cent of moving costs are spent on office accommodation and 80 percent on salaries. &nbsp;In effect, office accommodation is relatively insignificant when compared with salaries and wages.

For this reason, moving offices could result in an increased rate of voluntary staff turnover. The trigger could be anything from long commutes, toll roads, congestion or lack of public transport.

If your office moving strategy makes your organisation less attractive to your high quality employees, the longer-term impacts of this talent drain could be significant. When contemplating moving to an office space that takes something away from your staff, &nbsp;it's important to balance it with a corresponding new benefit.

Our advice when deciding to move offices is to consider and involve staff in the decision making process. Forming a project team and including staff at various management levels can go a long way to achieving a positive outcome from a human resource perspective.

Office Relocation & Staff Retention

The availability of zoned, serviced industrial land in Johannesburg is becoming increasingly difficult to secure. This is because competition for existing pockets that can be developed - particularly along major freeway and transport networks - continues to escalate.

The significant growth in demand for this industrial land is expected to continue for the foreseeable future - both in terms of development and demand for supply to territories north of the SA’s borders. Many South African companies are busy executing expansion plans into Africa, while our inland and sea ports continue to be a trusted a gateway to various African destinations.



The most prominent Greenfield development opportunities in Johannesburg fall into three distinct corridors. These are based on availability of land and congruence with ‘centre of gravity’ studies completed by various logistics and supply chain consultancies. The three corridors are:

The road corridor between Durban and Johannesburg continues&nbsp;to support the vast majority of freight supply to Gauteng. Transnet are busy investing significant capital upgrades to their current infrastructure and this will hopefully lead to a shift to rail solutions. This hopefully means that we’ll experience less pressure on our already congested road systems.

Industrial property developers should make provision for rail access on new projects. Rail will hopefully become a more economical mode of freight transportation. A reduction in transport costs will hopefully have an easing effect on commodity pricing and offer some respite to consumers.

Proposed industrial sites should offer the following fundamental features in order to secure success and viability:

Brownfield development in older established industrial nodes is becoming increasingly prevalent where municipal services and infrastructure are already in place.

Redevelopment costs may prove more economical, particularly when faced with the prospect &nbsp;of converting farmland into zoned, serviced industrial land within reasonable, economical time frames.

Contact Simon Black on 083 261 2861 to discuss upcoming opportunities.

Johannesburg's Industrial Property Pipeline

It's always a challenge for a business to match their operational requirements with suitable commercial property for them to operate in. If you're looking for new office or industrial property, you should carefully consider the following factors in order to be as productive and efficient as possible:
<ul>
 	<li><img class="size-medium wp-image-2363 alignright" src="http://blackpepperonline.co.za/wp-content/uploads/Buela-Park-3-300x212.jpg" alt="Slide 1" width="300" height="212">Lease and acquisition perspectives</li>
 	<li>Space and workspace efficiencies</li>
 	<li>Market pricing</li>
 	<li>Brand synergies</li>
 	<li>Location</li>
 	<li>Tenure</li>
 	<li>Footprint</li>
 	<li>Process and operational adjustments</li>
</ul>
As a business, you may consider relocating to new commercial space or establishing an entirely new location. In both cases, establish what market opportunities there are, and consider alternative scenarios. In this way, you'll formulate a rational business case for your management to discuss and approve.

When trying to find commercial property for your business, you may encounter several challenges, including:

<a href="http://blackpepperonline.co.za/wp-content/uploads/Buela-Park-2.jpg"><img class="size-medium wp-image-2362 alignright" src="http://blackpepperonline.co.za/wp-content/uploads/Buela-Park-2-300x211.jpg" alt="Slide 1" width="300" height="211"></a>
<ul>
 	<li>Excess space that won't be used</li>
 	<li>No break clauses were agreed to during lease negotiations</li>
 	<li>No future expansion or renovations are possible</li>
 	<li>The property may not accommodate a variable headcount if you're planning on expanding</li>
</ul>
Looking for potential commercial space should be done by developing alternative occupancy and footprint scenarios within a defined market area. For example, If you're operating in an area where it's difficult to attract a capable, competitive workforce, then your occupancy costs may be higher than other central business district spaces.

You should then measure the economic and non-economic impact of alternative scenarios, and create a business case for the optimal scenario.&nbsp;Understanding all of the cost levers can help you identify hidden opportunities to improve your use of space, consolidate operations, reduce costs, improve efficiencies, and align the property with business operations.

Partnerships with design and planning teams are vital in order to define workforce requirements and transition assumptions. If relocation is feasible, we can help you create a location strategy to help your company understand the optimal location in terms of how it will be used.

Are you looking for commercial space? We can help you with the process. Some of our recent clients include: MTN South Africa, Bosch Holdings, Analysys Mason, Heinz Foods, Invest in Africa, Bidpaperplus, Imperial Logistics, Barloworld and Unitrans. Contact us on 083 261 2861 to find out more.

Finding commercial space for your business

Tenant representation is the process of helping tenants to identify and align their strategic, financial and operational objectives for their commercial property requirements.

Whether you're looking to rent a commercial property, renew your lease, relocate to another property, or expand your business, tenant representation services as offered by property consultancies can be extremely helpful. In offering these services, a good property practitioner should offer an in-depth knowledge of the various rental markets, combined with strategic and relevant solutions.

Today tenant representation services should include:
<ul>
 	<li>Property strategy development</li>
 	<li>Management of the facilities development process to suit your specific needs</li>
 	<li>Demographic and centre of gravity studies</li>
 	<li>Market analysis</li>
 	<li>Cost of occupancy analyses</li>
 	<li>Negotiation with property stakeholders</li>
</ul>
By creating competition in the marketplace, particularly when dealing on behalf of a blue chip tenant, landlords are often pressured into offering favourable terms. With the support of our in-depth market knowledge and strategic problem-solving abilities, clients are able to effectively create and leverage opportunities in the marketplace to secure attractive transaction structures.

We find that if you're a blue chip company, you have the best chance of negotiating the most flexible deal that offers the most value - because the landlord knows you're able to pay your rent. If you're a tenant, you should use your commercial broker's relationships with landlords, brokers and current market information resources. Through this process, you have a better chance of getting lower rentals and lower overall costs associated with commercial property transactions.

Tenant representation services should also include a financial analysis where various options are considered. The main benefit of this is that you have an accurate budget for transactions and annual occupancy costs. You're also better able to control your lease structures.

If your commercial property broker has strong relationships with landlords, they'll have better insight into how far they are willing to negotiate. This means you know how far you can push the envelope in order to get the best deal.

At Black Pepper Properties our tenant representation services give you the following key benefits:
<ul>
 	<li>Cost-effective, flexible and functional commercial property solutions</li>
 	<li>Orchestrated competition among landlords in the marketplace (usually via a closed RFP process) by using our clients’ tenancy to achieve a competitive outcome</li>
 	<li>Accurate information and expert guidance to meet specific requirements</li>
</ul>
A well-informed property strategy will address both current and long-term requirements. A fully integrated tenant representation approach means you'll benefit from relevant, well-negotiated property solutions to achieve your specific business objectives.

&nbsp;

Tenant Representation Services

A Real Estate Investment Trust (REIT) is an internationally recognised investment structure geared for listed companies that own and manage rental properties. The main aim of REITs is to provide certainty with a property investment through a simple and clear tax structure. The structure is also globally standardised: currently, more than 25 countries in the world use similar REIT models.



REITs have many advantages for listed companies and investors - both local and abroad. Some of the more significant benefits include:

1. Benefits to the Listed Sector
<ul>
 	<li>South African REITs can deduct all distributions paid to shareholders as an expense.  If REITs pay out all distributable earnings to shareholders, the REIT will not incur tax.</li>
 	<li>South African REITs do not pay transfer duties or capital gains tax on the profits accrued from the sale of a property.</li>
</ul>
2. Benefits to Local Investors
<ul>
 	<li>Shareholders of a REIT do not pay Securities Transfer Tax (STT) on buying or selling REIT shares.</li>
 	<li>Investors receive gross distributions from a REIT without incurring the 15% dividend tax levied against the distribution.</li>
 	<li>REITs allow for net property rental income and provide investors an investment alike to direct ownership of the underlying property.  This happens if REITs deduct distributions paid to shareholders as an expense, which therefore means that the REIT pays all of its distributable earnings.</li>
</ul>
3. Benefits to International Investors
<ul>
 	<li>Because similar versions of the REIT model are used throughout the world, foreign investors understand and have confidence in the REIT model.  This confidence makes South African REITs a transparent and attractive opportunity to international investors.</li>
</ul>

A simple guide to understanding REITs in South Africa

Just days after the <a title="Growthpoint and Dimension Data: A Joint Venture" href="http://www.blackpepperonline.co.za/2013/07/growthpoint-dimension-datas-joint-venture/" target="_blank" rel="noopener noreferrer">strategic partnership between Growthpoint and Didata</a> was announced, the South African Council of Shopping Centres (SACSC) released a study highlighting the benefits that social media plays in the retail environment. This article goes further by acknowledging the potential opportunity for shopping centres to increase customer satisfaction by offering free Wi-Fi.

In line with this, the increasing trend with commercial landlords is to add value to their customers by providing efficient and reliable internet connectivity. Could this search for differentiation be a response to the long queue of commercial property funds waiting to list? While some property funds are promoting the “green revolution”, others are now embracing the tech revolution in the form of offering world class internet connectivity to their tenants.

In light of the SACSC study, this is good news for shopping centre tenants. While there has been some negative sentiment as a result of the long queue of funds waiting to list, this new move by property funds as a way to increase their value proposition might just be the hidden gem that silences the critics.

Internet connectivity as a commercial value proposition

Commercial property development company Growthpoint announced last week that it has entered into a joint venture with telecommunications giant Dimension Data.&nbsp;The five year deal allows Growthpoint to provide its commercial tenants with efficient and reliable high speed internet connectivity at reduced prices.

The Dimension Data/Growthpoint deal is the first partnership of its kind in South Africa where a commercial property company has teamed up with a service provider.&nbsp;Besides the obvious benefit of South African businesses now able to interact with international business more efficiently, the deal also means there is now increased potential for South African businesses to compete for business further afield in Africa.

International business communities have always viewed Africa as the &nbsp;elusive "pot of gold at the end of the rainbow", since there is enormous untapped commercial potential on the continent. The lack of infrastructure, however, makes Africa a challenging and complicated place to conduct business, as reliable internet access is only available in major &nbsp;cities via broadband.&nbsp; Three in ten people in Africa have access to the Internet and the benefit of increased Internet access is profound with a 10% increase in broadband resulting in a 1,38% increase in GDP.

Growthpoint, by providing superior internet connectivity, will help put its tenants on a level playing field with the rest of the world in competing for Africa’s business. The move also gives Growthpoint tenants an edge over other South African businesses for whom internet connectivity is less affordable.

Already considered a major hub in Africa, South Africa's improved internet connectivity courtesy of this joint venture is set to improve the the attractiveness of local companies both to other local businesses and to businesses abroad.

&nbsp;
<div></div>

Growthpoint and Dimension Data: A Joint Venture

When it comes to new commercial premises for your business, your broker will present you with a shortlist of potential site options after a detailed space assessment. Once you have this shortlist, you’ll need to evaluate each option – preferably with your broker - based on the proposed lease terms for each. In most cases, commercial property leases will comprise the following points that you’ll need to analyse carefully:

For each issue above, ask yourself the following questions:

Commercial Property Lease Term
<ul>
 	<li>How long do you want to lease a particular site for?</li>
 	<li>Would the proposed commercial or industrial site be considered strategic, in which case a longer lease would be optimal?</li>
 	<li>Are you expanding quickly and only need a short-term solution?</li>
</ul>
Rental Rates
<ul>
 	<li>Can you afford the monthly rental costs for each property? To get an idea of this, request an itemised list of all rental, operating expenses and contributions that may be levied over the lease term – and whether they’re quoted as net or gross figures.</li>
 	<li>Are the annual escalations on the commercial property affordable?</li>
 	<li>Are the quoted rental and escalation rates market related?</li>
</ul>
Deposit and surety requirements
<ul>
 	<li>Can you afford the costs or would they be an excessive burden to your business?</li>
 	<li>What are the repercussions if your business defaults on payments?</li>
 	<li>At what point would your deposit be returned or bank guarantee expire?</li>
 	<li>What are the terms for reinstatement of the commercial premises?</li>
</ul>
Renewal and purchase options
<ul>
 	<li>Do you have the right to sub-let the commercial premises?</li>
 	<li>If so, do you have written permission from the landlord?</li>
 	<li>Can you assign your lease if you sell your business to a third party?</li>
</ul>
Repairs and maintenance
<ul>
 	<li>Who is responsible for the repairs and maintenance of the commercial property over the lease term?</li>
 	<li>What are the landlord’s responsibilities in terms of fixtures and fittings as well as receiving all installations in good working order?</li>
 	<li>Will the landlord require you to pay for the structural insurance for the safeguarding of the property, buildings, infrastructure and all installations such as air conditioners and generators?</li>
 	<li>What are the implications should the entire commercial premises be destroyed?</li>
</ul>
Operations&nbsp;
<ul>
 	<li>Is the landlord aware of your business operations and whether these activities may be in contravention with local municipal regulations for the property?</li>
 	<li>Is the commercial property zoned for your daily operating activities?</li>
 	<li>Does the parking allocation support your requirement?</li>
</ul>
Option to purchase
<ul>
 	<li>Does the lease include an option to renew or an option to purchase?</li>
 	<li>At what point do these options have to be exercised?</li>
</ul>
Signage
<ul>
 	<li>Will the landlord permit signage on the commercial property?</li>
 	<li>What are the municipal restrictions for signage in the area?</li>
</ul>
In your search for a commercial space, remember to plan ahead and give yourself enough time to investigate, negotiate and ultimately relocate. Stay flexible unless you have a very specific requirement in terms of configuration or location. Above all, keep your options open as much as possible.

Contact Simon for further assistance with any commercial property requirements on 083 261 2861.

&nbsp;

Commercial property lease structures

As a landlord, securing a good deal when buying or leasing property is fundamental to achieving your investment goals. And the best way to secure a good deal is by using a commercial property broker.

But why is this?


Good commercial brokers maintain relationships with landlords, property managers and tenants, and also have knowledge of upcoming lease expiries, expansions or sub-lease opportunities. As a landlord, using a broker means you can tap into these relationships, as well as making use of their marketing tools to attract potential customers for a particular site.

Once they've identified opportunities for you, commercial property brokers will also do the necessary work required to conclude a property deal on your behalf. This includes tasks such as marketing, handling site visits, facilitating meetings and dealing with detailed contractual paperwork. In doing these tasks, they save the landlord hours of time and energy required to make the deal happen.

In addition, an experienced property broker will have dealt with many different clients, and so will have honed their skills through exposure to various transactional scenarios. Using a property broker therefore means you can harness this experience and skill to get an optimal result for your business in terms of your property investment.

In South Africa there is fierce competition for commercial stock, which means that deals can often be clouded by market noise&nbsp;or even&nbsp;bidding wars. This in turn&nbsp;can drive prices up and the deal's value down.&nbsp;Most commercial property brokers have a client network with property purchase, disposal or leasing opportunities.Thanks to this network, a commercial property broker can help you conclude an attractive deal without the market knowing about it – which is usually the best scenario for all parties involved.

&nbsp;

Why should landlords use commercial property brokers?

The idea of owning commercial property rather than leasing it continually comes up in discussion with tenants looking for commercial space - whether it's an office, showroom, factory or warehouse. However, there are several advantages to leasing commercial property that may well outweigh the benefits of ownership. In this article, we'll debate the some of the cases for both arguments.

Leasing commercial property offers you as the tenant greater flexibility because when the lease terminates, you have the option to move to newer, better-positioned premises. In most cases, commercial property leases in South Africa have annual escalations that are negotiated upfront with the landlord. Knowing what you'll pay upfront allows you to budget more accurately. It also helps you avoid the hassle and expense of having to set aside capital reserves for potential structural problems or destruction to the property and buildings.

Leasing commercial space may be a good option for your business in terms of freeing up capital in order to upgrade equipment or technologies, increase your staff compliment or even open another branch. If you were considering buying, high demand locations would be expensive and in most cases unattainable, while leasing in these areas may be better both from a flexibility and affordability perspective.

When it comes to tax, remember that all rental payments are tax deductible and are classified as operating expenses. Depending on the agreement with the landlord, some tenant installations including fixtures, fittings, dry walling and flooring can be depreciating improvements, which could reduce your business’s tax exposure.

Most of the disadvantages with leasing commercial property have to do with control of your work environment. For example, as your lease term progresses and the annual escalations kick up, a downturn in the market could leave you paying considerably above market rentals.

Another challenge is that you could have neighbouring tenants who do not comply with the rules of the property – and so noise, maintenance, cleanliness could all lead to a less attractive location for your business premises. Unless your landlord or property manager enforces the rules and regulations within your business park, this could become very frustrating.

When signing a lease, always be aware of ‘change of ownership’ clauses, which are these days fairly common. A new landlord may have a different vision for the business park on things such as redevelopment or renovations, which render the site unattractive for an extended period. Or, the landlord may want to maximise profit at the expense of quality and attractiveness of your premises.

Always keep these ideas in mind prior to committing to a new business address. Whichever option you choose, we would recommend using an experienced, qualified broker to assess various opportunities for your commercial property needs.

Leasing commercial property

Fairly often, prospective tenants are hesitant to call on a commercial property broker when looking to secure commercial spaces for their operations. Some mistakenly assume that the services offered are&nbsp;too&nbsp;expensive, or a favourable result could be achieved by merely calling a couple of boards attached to the fence of an office park.

Bear in mind that in the majority of cases,&nbsp;the landlord settles all commercial property brokers' fees.&nbsp;So in fact, a broker’s time to you as the tenant or buyer is free.

Here are a few reasons to have a broker assisting you with securing suitable, well priced premises:

Think of your broker as an informed advisory. After all, it's in their best interests to keep your proprietary information safe and secure. Honesty and a transparent approach are fundamental to building long-standing relationships and are the lifeblood for a commercial broking firm looking to secure a future pipeline of business. There will be significant time spent together on the phone, emailing, driving to sites, analysing paperwork and dealing with architects, engineers and builders - all of which is hopefully part of a rewarding process.

Market knowledge is one of the most important pillars in a successful relationship with a commercial property broker. Good agents know the going rates in their areas of focus and must have an ability to secure upcoming bargains that may not yet be in the public domain.

The commercial property sector is far more specialised than the residential sector and can therefore prove a little more challenging in terms of securing competitive, suitable commercial property opportunities in preferential locations. Managing resources and keeping and an ear to the ground are an integral part of a successful broker’s armoury.

Experienced brokers are able to assess an opportunity for possible pitfalls or challenges. For example, this may include when rental or escalation rates appear above market, common area contributions are out of synch, or possibly onerous lease clauses could be in play which may have a negative affect on your business.

Ultimately, a commercial property broker will save you time and money. Allow your appointed broker to manage the majority of the paperwork and part of the negotiations on your behalf. Your responsibility as the tenant is to come up with valid queries, assess the suitability of the space and make final approvals.

Why use a commercial property broker?

In South Africa, the commercial property market moves through various cycles, which vary in terms of classification and timing.

Longer commercial property cycles are referred to as construction cycles, and these occur on average every eighteen years. Interspersed between these long cycles are short-term or investment cycles that usually last between five to ten years.

Although it is difficult to forecast the timing of these property cycles accurately, vacancy rates across the various asset classes can be an important indicator for commercial property investors who are looking to predict the best time to buy or sell commercial property.

In general, the best time to purchase property is at the bottom of the cycle, which we are experiencing now.&nbsp;However, securing funding in these conditions can be a challenge because funders are hesitant to take on risk in a tougher economic climate - particularly from a development perspective.

The delivery of development stock late in the property cycle can also be dangerous, as these assets may only come to market once the property cycle is on a downward phase.

Interest rate cycles also play a vital role to the success or failure of property owners and investors alike. Increasing interest rate cycles especially can cause havoc within the property market. If you're a property holder, make sure that you avoid cash flow strains through tougher market conditions.

If you have any&nbsp;queries relating to investment property or commercial property funding contact Simon Black (083) 261 2861.

The Commercial Property Cycle in South Africa

There are many exciting opportunities for head office sites if your business is based in Johannesburg or greater Gauteng. These various sites are geared to accommodate either prospective tenants or owner-occupiers. At Black Pepper Properties, we&nbsp;work closely with a number of listed and private property funds who are looking for tenants to occupy their blue chip office addresses.

There are also a number of property developers equipped with zoned, serviced land, with a view to build new head office premises to each of their client’s specific requirements, for either lease or to ownership purposes (via freehold or sectional title schemes).

We're equipped to manage this process from start to finish. Once we've confirmed your office space requirements, we manage the tender process to ensure that you get competitive pricing and a high quality product in an optimal location.&nbsp;The participants that we recommend to develop your new head office premises all have significant development experience coupled with significant portfolios of past projects.&nbsp;We run the process in a closed ‘Request For Pricing’ (RFP) environment where vendors are aware of their competitors. This ultimately ensures a fair, transparent process to appointment.

Teaming up with experienced, creative interior architects and designers enables us to manage a comprehensive assessment of your office space requirements and specifications.&nbsp;Once we've defined the broad parameters, we incorporate your business’s unique brand characteristics and qualities to design and create a complimentary workspace atmosphere.&nbsp;We're also able to manage the procurement and timeous installation of all critical technical aspects to your operations, including access to broadband, telephonic portability and IT infrastructure.

If you're considering moving your head office address, we encourage you allow Black Pepper Properties to manage this process for you. We'll save you from a significant amount of the uncertainty and stress that's usually associated with a project of this importance and magnitude. Dealing with professional, experienced practitioners also frees up you and your staff to focus on core operating competencies.

For any office related enquiries contact Simon on (083) 261 2861.

Looking for New Head Office Premises?

Commercial property owners and tenants are becoming increasingly aware of rising operating costs, which have implications on business profitability. For example, South Africa has recently experienced significant increases in electricity prices. Although electricity supply is still relatively cheap in comparison to the rest of the world, consumers in a South African commercial property environment can't easily absorb the rate at which these costs have risen.

In addition to the rise in electricity costs, there have also been considerable escalations in municipal rates and taxes for commercial property over a similar period.

To put things into perspective, the average commercial property operating costs have effectively doubled since 2005 according to the IPD Income and Costs Digest. This equates to annual cost inflation of around 12% a year for the past six years up until 2011, which is significantly above the CPI over the same period.

Electricity is the most prevalent of these expenses, where rates grew from R4/m2 in 2005 to R12/m2 in 2011 - &nbsp;effectively tripling over six years. This is a tremendous adjustment to absorb.

As a result of these increases, commercial property investors are being forced to turn their attention to protecting their valuable income streams wherever possible and being cognisant of the benefits of&nbsp;&nbsp;financial management. At Black Pepper Properties, we're equipped to guide our clients on this through preferred partners such as Green Wave.

For assistance with assessing your operating cost exposure on commercial property, contact Simon (083) 261 2861.

Commercial Property Operating Costs

Due to uncertainty around South Africa’s economic prospects&nbsp;-&nbsp;in particular the significant unemployment challenges coupled with the recent mining sector unrest - experienced South African property investors understand the importance of planning for projected future outcomes in these turbulent times.&nbsp;Beyond just planning six to twelve months ahead, however, successful property investment requires real skills to successfully formulate strategies for predicting long-term outcomes.
Scenario planning for property investors requires an understanding of a handful of fundamental pillars that ultimately determine future outcomes:
<ul>
 	<li>Enlightened political policies are a vital part of investor confidence. When governments provide stable environments where transparent, accountable and credible modes of interaction are encouraged and maintained, business thrives. In South Africa, political bureaucracy and local council inefficiencies are hampering much needed growth and development, in particular with respect to service delivery and rising property taxes.</li>
 	<li>Economic growth is dependent on direct foreign investment, robust local economic activity and a healthy, educated population with rising per capita incomes. Locally, real growth is proving elusive where high unemployment levels persist and HIV related illnesses compound our existing social issues. Recent union and strike action activity &nbsp;is also crippling the local economy and in turn hampering critical direct foreign investment.</li>
 	<li>Demand cycles need to be monitored and can be predicted via measurable indicators such as market demand, building plan approvals at local council, recent rental and sale pricing and investor return statistics – all of which also point to possible future trends.</li>
 	<li>Development costs associated with construction have a direct effect on the viability of development projects. Directly related to costs are the levels of market competition, productivity levels, the cost of capital, interest rate levels, equity return demands, pricing stability and any related long term financial positions.These factors need to be favourable to ensure development venture success.</li>
 	<li>Predicting and understanding consumer&nbsp;market trends is critical, because profits are made when demand and supply are matched via accurate space assessments in conjunction with relevant product supply. Property trends do not always coincide with demand for the various property types; for example, in most cases residential demand often lags behind that of industrial and office property through a market recovery. Developers need to ensure the timing of product to market coincides with demand cycles.</li>
</ul>
Scenario planning can only become meaningful if all of the variables above are correlated back to the recurring and fluctuating levels of economic&nbsp;activity that business experiences over long periods of&nbsp;time.

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