At First National Neilson Partners, one of the most common questions we receive from property owners is, "Can I convert my residential property into a commercial property?" This is a topic that sparks a lot of interest, especially as commercial leases typically offer attractive benefits. These leases are usually structured as net leases, meaning landlords can collect GST (if registered) along with outgoings like council rates, water rates, and insurance. This can make the idea of converting residential properties into commercial properties appealing, as the yield potential can be quite enticing.

However, while the idea of converting a residential property to commercial might seem straightforward, there are a number of hurdles and expenses involved that you should consider before proceeding with such a transformation.

What Makes a Residential Property Suitable for Commercial Conversion?

Not all residential properties have the potential to be successfully converted into commercial spaces. Several key factors determine whether a residential property can be transformed into a commercial one, including:

1. Floorplan: The layout and size of the building play a critical role. Commercial properties often require more open space or specialized configurations to accommodate businesses.

2. Block Specifications: Elements such as block fall, width, and length are essential in determining how the property can be adapted for commercial use.

3. Location and Council Zoning: One of the most critical factors is zoning. The location of your property will heavily influence its potential for conversion. Properties located along busy roads or in proximity to large-scale commercial infrastructure, like the areas around Dandenong Hospital and Clyde Rd in Berwick, are more likely to be suitable for conversion.

Understanding the Conversion Process

Once you’ve determined that your property may be suitable for a commercial conversion and council zoning allows it, you need to consider several aspects, including:

• Type of Tenancies: Will your property be used for medical, NDIS accommodation, worship, office spaces, or a mix of all? Each type of tenancy comes with its own set of rules, building classifications, and requirements that must be met.

• Compliance and Regulations: Converting a residential property into a commercial space requires the involvement of professionals, such as building surveyors, town planners, and other experts, to ensure compliance with the necessary codes and regulations. Without proper compliance, you cannot enter into a commercial lease agreement or receive the certificate of occupancy, which is required for the property to be legally used for commercial purposes.

• Costs and Investment: Converting a residential property into commercial use is not a small undertaking. The process can easily cost $100,000 and beyond, depending on the type and scale of the conversion. It's crucial to understand the financial implications and speak with a commercial real estate agent at the start of the process to assess potential rental income and ensure the costs align with your investment strategy.

Is It Worth It?

While converting residential properties into commercial spaces can yield higher returns, it’s important to weigh the investment costs and the challenges involved. Consulting with a commercial real estate agent is essential to make sure your conversion is viable and profitable. A professional can help you understand the potential rental value, gauge demand in the area, and assist in navigating the complex regulatory requirements.

If you’re considering converting your residential property into a commercial one, don’t hesitate to contact the Commercial Team at First National Neilson Partners. We’re here to guide you through the process and help you determine if this is the right move for your property.