September/October 2004
Corporate rentals for a good spread
By Sasha Levitt
When building your property portfolio considering only one type of property is just as limiting as choosing all of your property from only one area. To take full advantage of increased returns that diversity can bring, you must explore niche market properties or quite simply property which does not fit the model of the standard house & land, or strata titled home unit. One such property is a corporate type furnished property.
Corporate rentals can bring high yields and be an extremely viable and often hugely successful idea because it can bring higher rental returns and attract good steady tenants but success is not always guaranteed. There are instances where the property is so clearly set up for a corporate rental that an investor should think very carefully before proceeding.
Corporate rentals give a better return primarily because a premium is paid for it’s nature and being furnished. Since executives on short working contracts from other countries rarely travel with their own furniture, they require furnished accommodation and because the companies who employ them usually pay for their accommodation and quite handsomely I must add, the rental amount achieved is usually high. For example in a new building in The Rocks area of Sydney called the “cove”, one bedroom apartment rents for around $500 per week, but furnished they rent for around $650 per week, that is a 30% higher rental return.
How do you target corporate rentals? A good starting point is location, make sure your property is situated close to corporate headquarters which are usually located in CBD’s and decentralized CBD’s. People like to live close to where they work especially if they are from a foreign country. Facilities – make sure the property has facilities in it or close to it. Executives who work long hours do not like to waste time traveling to let’s say a swimming pool or gymnasium. If it is in the building it makes life easier. A view is also important because in Sydney we are blessed with some spectacular Harbour and beach views which other places do not have. If the opportunity presents itself corporate clients will usually take advantage of the opportunity to live with a view even in the short term.
Since corporate tenants are usually in relatively high positions with good salaries, their standard of living and expectation of furnishings is also quite high, make sure to attract these clients you furnish your property with taste and good quality furniture. They will know substandard furniture when they see it.
The Benefits
- Where the property is situated very close to various corporate headquarters the demand can be very high.
- The companies usually take out the leases, so there is less incidents of rent defaults or malicious damage
- The ability to rent to one entity (the company) who has lots of employees means if one employee goes back home there is probably more in the company who can be moved into the property. Means the risk of vacancy is more easily managed. One tenant moving out could mean their replacements move in.
- The higher returns possible on this type of property means the increased vacancy period (from it being furnished) is usually compensated for.
The Drawbacks
- Even big companies can go into liquidation and if they are overseas companies litigation can be difficult.
- The reliance on the economic climate means unrest in the world or economic problems can affect it.
- There is a tendency towards oversupply especially in the CBD area, leading to higher competition and a lowering of returns.
- Building with facilities such as swimming pools, gymnasiums and concierge usually have very high outgoings in the form of strata rates. This can be managed well where cash flow is positive from the outset.
- It may be difficult to control wear and tear on the property if the corporate tenancies are short term. People moving in and out of properties inevitably cause some damage.
Since the coming of the new millennium, astute investors around the country have turned their eye to property investments which can provide short-term returns in the form of positive cash flows to lighten their financial burdens.
As long as you follow the fundamentals of property investments, research, budget and education corporate rentals are a good way to capitalize on your investment return and insure you a positive future.
