It’s no secret that higher interest rates, inflation, and a competitive market have changed the commercial real estate landscape over the last two years. The rapid increase in rates combined with labour shortages have led to a spike in operational costs and have made owning and renting property more expensive.
While we have very little control over rates and rising costs across the country, business owners can create a strategic plan to protect their businesses through challenging times. Whether you’re an investor looking for commercial property for sale in Calgary or you’re a tenant anticipating increased costs, here are a few actionable steps you can take during economic uncertainty.
For Investors
Create a Detailed Financial Projection
While creating financial projections is a crucial part of planning ahead before looking for a property, we recommend including projections that cover different interest rates and economic scenarios. To do this effectively, you’ll need to speak with your financial advisor and a commercial real estate expert who understands the market and knows the trends.
Reassess Your Cash Flow
Ahead of looking for commercial property for sale in Calgary, involve your financial advisor or accountant early in the process. Assess your cash flow meticulously – if rates go up or the economy is hit by a recession, will your cash flow be able to survive the changes? Your advisor or accountant can give you an accurate estimate and an honest opinion of what you can afford.
Plan for Contingencies
A contingency plan is all a part of a sound commercial real estate investment plan. However, during uncertain times, it’s better to ensure you have extra funds for unforeseen expenses than to go back to the bank to negotiate more funds or use your working capital.
Be sure you plan for:
- Construction or renovation delays due to labour and material shortages
- Rent negotiations from potential tenants in a competitive market
- Cost overruns for marketing your property
For Tenants
Negotiate a Lower Rent Increase
Rental rates have gone up sharply in the commercial real estate industry as our economy recovers from the impact of the pandemic. Although rent increases are typically in your initial agreement, you can try to negotiate a lower increase. Some landlords prefer locking tenants into a longer lease over finding a new tenant, even if it means agreeing to a lower rent increase.
Improve Operational Efficiency
If you are a new business looking for a new space or you’re looking to move locations for a better rate, you could benefit from improving your operational efficiency. A hybrid workforce and better inventory management can significantly reduce the amount of space you need and, consequently, the amount of rent you pay.
Consider Investing in Your Own Commercial Property
While renting a space makes sense for some businesses, consider the long-term strategy of your company and even your exit plan. Some business owners are hesitant to invest in commercial property because of rising interest rates. However, if you have the means and the growth potential, buying a commercial property can work out in your favour.
Here are some of the benefits of investing in commercial real estate:
- Build equity while your property grows
- An asset that can be used as collateral for financing large projects with massive growth potential
- Can be sold in the future or rented out as part of your exit strategy and retirement income when you sell or wind down your company
Talking to a Commercial Real Estate Expert
Whether you’re an investor or a tenant, speaking to a commercial real estate expert can help you make an informed decision that will protect your business during economic uncertainty. At CMS Real Estate, we have a finger on the pulse of current and future trends in Calgary’s thriving market and can answer your questions. Contact us for more information.
Blog posts from CMS Real Estate are for general information only. The content should not be considered real estate management or investment advice. If you are in need of professional real estate advice, please contact our team.