Markets can be deceiving and it is not always the case that what you see is what you get. Consider the cyclic nature of real estate markets. Often, the rush to supply the market demand may occasion an oversupply leaving developers staring at financial daggers in the face. This may be a difficult situation to be in, depending on your establishment or lack of it in the market. The standard process is that your property gets to hang around in the market for longer and when you finally get a tenant, you do so at sub-optimal prices.
The effect is that it takes longer to get a return on investment. To be wishful, it had better be a short-term problem. Typical reactions to an oversupplied market include waiting for a market come-back, increasing marketing efforts, standing out from the crowd and price adjustments. Still, developers may find more creative ways to deal with their abundance of extra space. Here are a few tips on how to go about being innovative in the market.
Subdivision of Spaces
Generally, a glut in the market begins its affection with the high-end segment because investors are lured to invest in high-end properties following high returns. Demand is speculative and the result is that there are not so many wealthy tenants to go around. Usually there are more middle income earners and even more down the pyramid. An innovative way for property owners with large units to deal with this is to subdivide the units, especially for office and commercial space, into smaller ones according to market demand. This doesn’t have to be expensive because there are cheaper alternatives of accomplishing this without massively altering the structure of the building. This can help generate cash flows while you wait for market corrections to take effect. Even for rental properties, this is possible to do.
Conversion of Usage
Another way is to convert the properties from one use into another. For instance, it may be so that the market of office space is oversupplied but there is a shortage of conference rooms and demand for exhibition halls and theatres. Thus, a block of offices can be turned into commercial halls for conferences or exhibitions. Alternately, a residential block may be used for commercial purposes such as a community social welfare centre or a school. The key is to observe the market and look for opportunities that may offer the next best alternative under the prevailing conditions.
Incorporate Non-Profit Uses
Sometimes it is better to forgo a little profit in order to get a lot of profit. For example, giving space for a book club in an office apartment block or inserting room for a social centre in a commercial building may be a strategic move to bait the right tenants. The goal of such a strategy is to create the right environment for tenants to want to use your space. Such not-profit activities are viewed by many as corporate social responsibility which imputes approval ratings in the eyes of the society and market participants.
There is absolutely no limit to the extent of innovation that can help you milk some cash out of an unfavourable market. There are still risks involved, however the up side is quite attractive.