Before we dive into what is the most effective strategy to sell your industrial property at the highest possible price, we must first understand how the industrial property market works and who are the ones really buying industrial properties.
Investors
As we know industrial property investors are a number-sensitive pool of buyers who sometimes eye industrial properties that can generate around 6% rental yield. This can also mean that if you are looking to sell your property with tenancy, the rental rate has to be really attractive so that the investor is willing to pay a good price for your industrial property. If the rental rate is unattractive, the investor would not be able to achieve a 6% rental yield and may decide to look elsewhere for better bargains. After all, this group of buyers who are investors are also bargain hunters looking to turn a profit from investing in industrial properties otherwise they may be better off not making the purchase.
Own Use Buyers
On the other hand, there is also another pool of buyers who purchase industrial properties for their own business use. This also means that it is more of a necessity for the business owner to buy the industrial property so that the company has an industrial space to operate from. Sometimes, after renting for many years and experiencing many years of rental increment and moving to various premises, business owners start to focus on stability and continuity in terms of business operations. Business owners may then decide to purchase their own industrial space so that their renovation cost will not go to waste. In a rental arrangement, if the company decides not to renew their lease, they may be required to reinstate the premises to its original condition depending on the landlord and the terms in the tenancy agreement. This reinstatement process takes up time, energy and resources and may not appeal to some business owners. Some business owners may also be tired of the frequent increment of rental rates and they may decide to pay for mortgage instead of paying for rental once they have built up sufficient funds for the down payment. After all, mortgage instalments consist of two parts namely principle as well as interest. Principle paid reduces your outstanding loan whereas interest goes to the bank and if the industrial property is able to retain its value, you may be in a better financial position than if you decide to rent. Own use buyers are also able to borrow up to 90% loan to value depending on the company’s financials and the bank’s approval.
How to Sell Higher
What we notice on the ground based on acting for our clients who are sellers of industrial properties is that a certain group of investors make up the majority of the enquiries when it comes to listing your industrial property on the market for sale.
When you decide to sell your property with an ongoing tenancy, the downside is that you are only able to target investors who are very number-sensitive and will be happy to give your unit a miss if your neighbour decides to lower their expectations in terms of selling price.
However, if cash flow is not an issue and you have sufficient funds to service your monthly mortgage instalments for around 6 to 12 months, it may be advisable to sell your property vacant without any tenancy if your focus is on the selling price. The reason is because own use buyers who are buying for own use tend to require the space quite urgently and are usually unable to wait too long especially if there is still a long tenancy period to go before the company is able to move in.
When you decide to sell your industrial property vacant, you will realise that you are targeting two groups of buyers who are either investors or own use buyers. Whereas if you were to sell with tenancy, you are likely going to be selling to a number-sensitive investor who is happy to go elsewhere if the rental yield is unattractive to them.
A business owner is more inclined to pay a better price if the industrial property specifications and location suits their business operations. Their consideration is whether the space is suitable for the business and not only the selling price. However, investors usually only consider the industrial property if the numbers make sense based on their set of investing criteria otherwise they will be happy to pass and look for the next one on their list.
Also an own use buyer who is eligible for up to 90% loan, only has to fork out 10% down payment as compared to a number-sensitive investor who is only able to secure up to 80% loan and has to fork out 20% down payment.
In summary, if the best possible selling price is your main priority, you may need to go outside your comfort zone and forgo your monthly cash flow by selling the industrial property without a tenancy so that you have a much larger pool of buyers that are more likely to pay a better price for your industrial property.
Are You Looking to Unlock Your Funds In Your Industrial Properties?
If you are a seller looking to unlock your funds which are currently invested in your industrial properties, feel free to contact us and we will be happy to share with you on the current market sentiments based on our real on the ground experience.