Businesses should consider paying rent

Simes Valuation director Will Blake says many may be better off leasing rather than owning.

“There’s been a substantial increase in the value of commercial industrial properties over the past three or four years, but if you consider the relationship between rent and capital or market value of the property, rents are at historically low levels,” he says

“A few years ago you might expect to pay a rent equivalent to 10-12% of the market value of the property, but these days it is more likely to be around 7%.”

Blake acknowledges rents have gone up in dollar terms, but says there has been such a strong rise in market values that rent as a proportion has decreased.

“As a result of such strong growth in market values, we might expect to see more business realising the capital gain in their buildings and renting rather than owning,” he predicts.

“Owning has been a favourable position in recent years with such strong capital growth, but it might not be this way forever. Astute businesses will work out the best time to be an owner and the best time to be a tenant.”

“One option is to sell the property and lease it back, to release capital to be used in other ways.”

“We suspect some landowners will be unaware of just how valuable their properties are in the current market. There’s strong demand from institutional and private investors and opportunities to make the most of the recent capital gains,” says Blake.