Why you need to pay attention to zoning when buying a commercial property

By Greg Bell

One of the most important elements of building successful commercial real estate is location. A commercial building needs to be accessible to any commuters and customers who will frequent the business, and ideally is built in an area people actually want to go to. This all, however, depends on the type of business you're running, as some locations are better suited to some services than others. A beach-front property is bound to draw more business for a spa than one in an industrial complex. But odds are customers from the suburbs will not want to travel all the way into the city to service their car. Even if you manage to find the perfect location, it's all for naught if there are restrictions on operations or if the law forbids running a business there.

What is zoning?

Zoning laws are established by individual states and territories, which means they vary from location to location across the country. In Australia, the main four zones are residential, commercial, industrial and agricultural. There are also sub-categories within these main zones which can, for example, define the type of business that can be carried out on premises, according to Real Commercial.

The local council of a given municipality makes the decisions on what zoning is appropriate for their area. They also manage the companies and properties within their zone and ensure compliance with their established regulations.

Zoning laws affect property value

According to the Reserve Bank of Australia, zoning restrictions can increase property prices anywhere from 42% to 73% above the cost of supply, depending on the city. Additionally, if a zoning law changes for a region, property values will fluctuate accordingly. If a zone changes from residential to commercial, the property value will increase. However, if a commercial zone changes to residential, property value will likely drop. The effects of zoning changes have a significant impact on an individual's return on investment for a given property.

When should zoning laws be considered?

Make note of zoning laws in your locality if you plan to set up a shop, a restaurant or other type of business, remodel the existing storefront or interior or advertise on the outside of the building. As a rule of thumb, anyone considering purchasing or modifying a commercial property should contact their local council to see what permits they will need to carry out their plans.

For advice on how best to address issues of zoning in your commercial property investments, contact an agent at Ray White today!

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