How SMEs can capitalise on a property market downturn
Over the last 12 months, property prices across Australia have dropped by more than 10 percent, causing Australia’s property market bubble to begin deflating at the fastest rate in 10 years.
While the recent property slump has negatively impacted many home owners and property investors, the story is a little different when it comes to small-to-medium-sized businesses.
In fact, not only has the decline left SMEs relatively unaffected, on the contrary, it has provided some rare opportunities that, if utilised correctly, can bring financial benefits to these businesses and their owners.
Before I dive into how explaining how SMEs can capitalise on this drop in the property market, it is important to give some background as to why this decline took place to begin with.
Banking Royal Commission
While there are many speculations as to why this decline has taken place, there is a clear correlation between the Banking Royal Commission, established in late 2017, and Australia’s recent property market fall.
The Banking Royal Commission came about due to some of Australia’s largest banks and financial services providers being implicated in various scandals, which began to raise many questions about the overall integrity of these organisations.
With large banks now being so heavily scrutinised, the ability to take out loans for residential and commercial property purchases has become increasingly difficult and that offers at least a partial explanation for the overall decline in property value.
Naturally, there is a lot of uncertainty around what the immediate future holds for the Australian property market, but regardless of what happens next, there are certain steps that small business owners can take in order to capitalise on the current situation.
Negotiate cheaper lease rates
For many small business owners, an unavoidable expense that sits on the business’s P&L is office rent – and as the years go by, rent hardly ever gets cheaper.
One of the most basic rules of economics is that, regardless of the industry, when stock declines in value negotiating becomes easier as businesses are eager (and sometimes desperate) to get rid of their now depreciated stock.
According to Marcel Dybner, Partner at Besser & Co. Estate Agents, the current state of the property market offers a rare opportunity for SME owners to get better bang for their buck when it comes to negotiating with commercial property owners for better lease rates.
“Everyone is an expert in a bull market,” said Dybner, “but savvy business owners see slowing markets as an opportunity to negotiate better lease and rental terms.”
Interestingly enough though, despite the current state of the property market, the vacancy rates for commercial rentals are still trending upwards.
When asked why this was the case, Dybner said that it largely has to do with the transition from traditional retail to online shopping.
“I think a major cause of the vacancy rates in the retail side is changing patterns for how people shop now. Online retail is growing every year in Australia, making it very difficult for many retailers to compete and be profitable,” Dybner told The Pulse.
Consider purchasing property
Growing a small business’ asset portfolio plays a very important role in securing the financial stability of that business – and whether it is being purchased for an individual, a small business or a multinational corporate, property will always be one the most secure financial assets that can be obtained.
Yet, being the valuable asset that it is, property is normally far too expensive for small businesses to consider investing in.
With the current state of the property market though, Dybner encouraged business owners with access to cash to “capitalise on the reduced prices” and consider purchasing property assets as a mid- to long-term investment for their business.
Of course, it goes without saying that purchasing property needs to be done with the correct advice and with the appropriate precautions – so in the event that you decide to venture down this pathway, make sure that you’re well advised.
Don’t rely on the slump
Now while SMEs can capitalise on the current state of the property market, Dybner warned business owners not to expect cheaper lease arrangements to be the sole catalyst that drives their business to success.
“The property price isn’t the main driving force behind SMEs’ success or failure. I think the whole business landscape is changing and businesses need to look at ways to be more competitive, regardless of what they’re paying for their office space.”
So, with the right balance of cleverness and caution, Australia’s current market slump can be a great way for small business owners to reduce their rental costs and invest in their future.
This advice is general in nature and as such does not act as a substitute to personalised, financial advice from an accredited professional. If you need to discuss your business finances in detail, you’ll find plenty of high-quality advisors in your area via our Partner Search page.