Office rental refers to the provision of a premises, a set of premises or a building for a company or a self-employed person carrying out activities not related to commerce, crafts or industry. Although the activity may be commercial, it must not be accessible to the general public and cannot be related to retail.
An office lease is a regulated rental contract, but the parties have great freedom and flexibility in drafting the contract, unlike residential leases.
What are the risks associated with office rental?
The biggest risk is not being able to rent out the property. There are many reasons why a property may remain unoccupied, whether in residential or professional rental, such as a price that is too high compared to the current rental market, the location of the property or its general condition.
As for commercial real estate, its future is uncertain due to the health crisis. Teleworking is now the norm for many companies, which means they need less office space than before, which can increase the risk of rental vacancies if you invest in offices.
How do you know if a real estate investment in offices is worth it?
The financial or mathematical analysis is a key element in determining whether an investment in offices is worth it. First, it is necessary to calculate the minimum value of the real estate.
This value can be divided into two blocks:
Block of value #1: rental income with analysis of existing leases It is important to consider the current rental situation of the building you wish to acquire, as a building may be vacant or fully rented. Office tenants cannot leave their space as they please, as they are required to comply with their lease. A rented office building therefore offers a certain cash flow security. It is important to take into account these rental income up to the next break date (the possible departure of the tenant with notice).
To calculate the present value of these cash flows, it is necessary to discount future income. This allows for a first block of value based on existing leases. For this, a thorough analysis of the clauses of the contracts in force is necessary, particularly to determine the departure indemnities of the tenants and any rent-free periods granted.
Block of value #2: the value of m² if the building were vacant To determine the second block of value, it is necessary to consider the situation if the building were vacant. In this case, it is important to estimate the value of the m² (vacant) at that location, considering two possible scenarios:
A. The value as an office (for rent)
To determine the value as an office for rent, it is necessary to estimate the realistic potential rent.
