As the age-old adage advises, location, location and location are the three most important aspects when it comes to property. However, in a buoyant property market it’s easy to forget that this is the most important component, as even badly located properties are in demand in the good times. When times turn tough, it is the well-located properties that have the highest demand. Consequently, the well-located properties retain their values better than any others.
Good locations depend on the property sector
According to Tony Bales of industrial property broking specialists, Epping Property, property investors need to note that a “good location” is different for each property sector and residential, commercial, industrial, retail and leisure property all have different factors that constitute a prime position.
“Each of these sectors will have their nuances that determine what makes for a better location. Also, importantly, different people will have different perceptions of what a good location is. From a property valuation point of view, it is probably best to try to think like the majority of people would, as it is this majority that will ultimately determine the bulk of a property’s future demand.”
Factors that make for a well-located residential property, which include being positioned in a good neighbourhood with access to schools, healthcare and recreational pursuits, are not the factors that make for a well-located industrial or commercial property.
“Conversely, the factors that render a residential property less attractive – things like being close to power stations, airports, major road systems, public transport hubs, and commercial and industrial nodes – are in fact the factors contributing to well-located industrial/commercial property. Various locational factors important to industrialists are the very same factors residential property owners want to keep away from.”
How can you be sure you are investing in a well-located property?
While the answer is not straightforward, the initial answer is to probably follow the herd. “If one is buying or renting an industrial property, a low-risk scenario would be to buy or rent in established industrial areas close to major metropolitan areas and transport routes.”
“Crucially, one must continually evaluate the locational aspect of a property as these do change over time and a location that may not seem highly desirable at first may evolve to become a “hot spot”. For example, parts of Sandton have become far more desirable since the Gautrain was built and office buildings close to the Gautrain station are in good demand.”
What to do when good locations evolve – buildings must adapt or die
Importantly, Bales warns that a well-located property may not remain well-located over the long term. Hence, property owners need to evaluate a property’s location continually and assess how the area in which it is located has evolved. “There is very little one can do about the location on a macro level should it change, however you can try to adapt the property to match.”
“For example – the community surrounding a particular retail centre may change over time. If that retail centre does not adapt with the changing environment and change its tenant mix to suit the needs of the new community residents then it will suffer greatly – fewer feet through the door, less income for the stores, more vacancies and ultimately much reduced returns for the property owner.”
Likewise for large industrial premises – although less common, surrounding infrastructure may change, transport nodes may relocate, and an expansive space may no longer attract demand from tenants due to the location changing over time and becoming less desirable. “In this instance a property owner needs to assess how the premises can evolve and change in order to re-attract interest. Perhaps the solution is to renovate one large space into several smaller units more suited to smaller commercial and light industrial tenants that will find the location desirable.”
Keeping up asset value
“By working to attract tenants and reduce vacancies, one maintains the overall income generated by a property – keeping up its value as an asset – even if the location has become less desirable.”
“As we are seeing, in the current tough market, the properties in demand are the ones in the better locations in the more established areas. As Warren Buffet has said, ‘Only when the tide goes out do you discover who’s been swimming naked’. With the economic tide going out in South Africa, properties with the best location will secure tenants easiest and will also hold their values better due to the larger pool of possible buyers,” says Bales.
“For those who find themselves faced with a property not in a good location, the advice is to look at how you can adapt the property in the short term to create demand and then if possible, sit and wait for the tide to turn,” he concludes.