Investing in commercial property
Is commercial property investment something that anyone could do or is it the exclusive domain of property tycoons and millionaires? With a bit of research, commercial property investment can be a good alternative to residential, even for the first-time investor.
Commercial property is a generic term encompassing all non-residential property including shops, offices, warehouses and industrial sites. Shopping centres, hotels, bars, and factories are all included. In general, commercial properties offer considerably higher returns than residential ones. Also, commercial leases are generally three years as compared to residential six-month or one-year leases.
However, the security of this investment depends entirely on your ability to attract reliable, long-term tenants. Small shopfronts, for example, tend to attract new small businesses which are notoriously unstable. Every time a business fails, you are at risk of losing rent, the shop will be vacant for some time, you will be liable for advertising and reletting costs and will have to cover the mortgage during the vacancy. Maintenance costs can also be much higher for a commercial property, especially if you have substantial air-conditioning or lifts.
When you are considering what type of commercial property to invest in, it’s best to seek the advice of an expert who is experienced in real estate trends and fluctuations in the market. No other factor influences a property’s future value and attractiveness to prospective tenants more than location. The location must be right for the type of property and have appropriate proximity to transport routes, including train stations and airports, tourist attractions and relevant demographics. A certain amount of foresight and research is invaluable. A disused shopfront on a busy polluted street, for example, might make the perfect caf?nce the local council’s traffic calming measures have taken effect.
The likely reliability of your tenant is the key to good returns, so the ideal investment is a property occupied by a government department or some other body which is unlikely to want to change its business address and which has obvious reliable income.
Property trusts and syndicates are another way of investing in commercial property. You will not have direct control over your investments, but your money will benefit from the diversity of product and be less vulnerable to sudden changes in a particular type of property. That is, a sudden glut of office tenancies might result in losses in this area, but may be offset by a boom in warehousing or hospitality.
Again, unless you have excellent personal knowledge and experience in the sector, the advice of an expert is essential to ensure that your property investment is a sound one.
