There has never been a better time to dispose of your Saskatchewan commercial real estate asset that was designed in a past decade. There are many reasons why a building could be referred to in this manner. As an example, if I am talking about retail or office, functional obsolescence could refer to lack of parking; industrial might be due to low ceiling height.
Higher values for vacant buildings
We used to place the highest value on a commercial building that had a fair market lease(s) in place for a reasonable period of time. We used to advise the owner of a vacant building that it was in his best interest to lease it out before placing it on the market for sale.
That was at a time when interest rates and capitalization rates were higher and lease rates were lower. Tenants weren’t so interested in buying their own building because it was simply cheaper to lease.
Abundance of buyers
Every commercial real estate broker now has an abundance of prospective purchasers who are currently leasing and want to invest in their own building.
We are in different times. Interest rates are lower than they have been in decades and lease rates have increased considerably. For a business owner who has another 10 or 15 years left in his/her career, it now makes a lot of sense to buy.
Time to reposition your investment
We are seeing shifts in where tenants want to be. This is in some cases creating chronic vacancies.
These vacancies can take a long time to fill. In many of these situations I believe a fundamental shift has taken place which is not going to be easily solved.
I believe this represents an opportunity for owners of the functionally obsolescent property to sell, pay the tax and re-invest in an asset that is likely to perform better over the next 15 or 20 years. Because of the limited number of opportunities for the owner occupant to buy, he will often consider a property that may not be the most current in design.
In the long run he can still be far ahead of the game by paying his own mortgage off rather than having to operate with the uncertainty of rising rental rates.
Are you curious about the current market value of your commercial real estate? Give us a call…you might be surprised!
Posted by Barry Stuart
