Feature:
Feature:
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Redevelopment
market in which the building is situated and only if
demand for space is strong, should the addition of
new lettable units be considered.
Swart adds that when identifying a suitable
location, investors should seek areas that already
have a couple of buildings being upgraded, or
ones that have plans in the pipeline. “Areas that
are part of an Urban Development Zone are also
preferable, as this offers a tax incentive that allows
you to expense your development costs similar
to depreciation. This however only works if your
intention is to keep the property for the longer
term,” says Swart.
Van Biljon says another very common mistake that
redevelopers make is over-calculation, instead
of conservative projections. “When expanding a
building’s rental space, investors assume that all the
new “gross lettable area” will be fully occupied and
tend to calculate their rental rate per extra gross
lettable area versus the cost, and these returns tend
to look fantastic.
i
“However in reality, this extra space may not be filled
and they end up bearing the costs. Over-optimistic
redevelopers also tend to make the mistake of
calculating the revenue potential of a building at the
maximum rental rates for the area.”
When redeveloping a shopping or business complex,
van Biljon advises a good balance between the
anchor tenant and smaller tenants is maintained.
“If you try to build too many units for smaller
businesses, which tend to be less reliable and stable
than the anchor, some of the space will end up in
dead corners.”
Van Biljon advises that making a building attractive
does not have to be expensive. “A simple thing like
tiling the toilets of an industrial building can give
the building an edge. Features such as fibre-optics,
a facility for electricity generators and security
infrastructure, will also enable you to offer the
higher end of the rental rates for the specific area,
but investors must be careful not to over-capitalise
by inserting such features,” concludes van Biljon. AD
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