The DC metro area is a great place to invest in commercial real estate. Because its economy relies largely on the federal government, property values were not hit as hard by the real estate collapse in the early 2000s. The government provides a stable economy and there is always a need for commercial space.
But owning a commercial property does not make it instantly profitable. Because values and expenses are consistently high, controlling costs are paramount to turning a profit.
Here are a few things you can do to maximize your profit:
1. Reduce your tax liability
There are a variety of ways commercial property owners can reduce the amount of taxes owed on a property. Taxes should not be treated as fixed expenses, and every locality has their own rules.
First you need to know how much your taxes are, then compare them to your property’s assessed value and make sure the rate is correct. If you have an issue with the assessment, appeal to your local board.
Take advantage of abatements and exemptions, as these can provide significant savings. Choosing certain tenants can help you qualify for exemptions, and improving your property may make you eligible for abatements.
Some report a savings as much as 25% on their commercial property taxes, so it’s critical that you take the time to understand what’s available and what you need to do to take advantage of these substantial tax breaks.
2. Provide exceptional service
While not as upscale as New York City or Los Angeles, the tenants in the DC area expect more. You must be responsive to tenant needs. Act as quickly as possible, even if the problem seems minor. If you don’t have this type of availability, hire a commercial property manager to take care of the day-to-day needs of your property.
Give your tenants leasing options. Full-service leases work well, and you’ll be able to charge a premium for additional services to limit your financial liability for janitorial, trash and other expenses.
Stay in touch with your tenants on a regular basis, and find out from them how you are meeting their expectations.
Joining a professional organization like the Building Owners and Managers Association International will help you stay on top of trends and issues, as well as provide opportunities for certifications that will make your building more attractive to tenants.
3. Start negotiating renewals early
Even though the market may not be as volatile as it was in the past, it’s a good practice to start negotiating lease renewals early, and to have a written tenant management plan in place. This way, you will not be surprised with an empty space and have a plan to deal with the loss of income that results from this.
Many offices in the DC area are dependent on government contracts, and when the contract ends the money they invest in the space runs out. Stay in touch with these tenants to find out when the contract ends if they will be able to continue renting and plan accordingly.
4. Continually market even when no space is available
As we mentioned before, the government economy is contract-driven. Sometimes these contracts end abruptly without any notice, and this can leave a commercial property manager stuck with empty spaces.
If you building is full, you obviously don’t want to aggressively market your property, but it’s important to keep marketing to help reduce the amount of time your spaces sit empty.
Because of the highly competitive nature of the DC metro real estate market, you must stay top of mind when there are so many choices available.
5. Control costs
According to a white paper published by Siemens, investing in technology increases the operating value of your building, which over time will provide a significant cost savings.
The Rocky Mountain Institute reports building owners spend an average of 22% of total expenses on water and energy. Get your building LEED or Energy Star certified. Not only will this help keep expenses down, but occupancy rates and rents are generally higher in both the US and Canada for these building.
Be a shrewd negotiator when hiring contract help. Try not to single-source anything, and always get multiple estimates before making a decision. When contracts are up for renewal, negotiate the best deal possible and look at alternative companies.
By combining good marketing with cost control, it is possible to have a profitable commercial space. Continually monitor your expenses, tenant turnover and invest in automation to save time and attract tenants, and you’re on your way for many years of success.