Demystifying commercial property investment Some people think commercial property is only owned by people in the BRW Rich 200 list, companies and big institutions. Not so. And if it delivers high rental yields and long-term leases, commercial property should sound very appealing to many investors. Property types and buy-in price points for commercial property are as diverse as they are for residential property. Fear of the unknown is confining many investors to the residential market. However, the reality is that commercial real estate is nothing to be afraid of. Let’s try and simplify things.
What is commercial property? It may be shops (retail), factories and warehouses (industrial), and office space (commercial). Retail - This doesn’t have to be mega shopping centres and malls. The local shopping strip can present a wide variety of smaller but by no means
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less profitable investment options. Appeal comes with good exposure, good parking and easy access. Office - Businesses will always need office space. Strata offices have proved popular as they can provide multiple income streams. Industrial - All sorts of businesses need warehouses, workshops and depots. Just think of the panel beater or the picture framer. Yields tend to be good, though growth is tied directly to the economy. Car parks - If you’ve ever tried to park in the middle of a city, you’ll know how in demand these are. Whether a 400-space parking building, a small lot or a single space in an apartment block, space is being snapped up. Storage - Storage units are a popular small-scale investment option. Low maintenance costs alongside growing demand has seen their appeal increase. Storage provides a wide
range of investment opportunities based on the size of the storage facility.
What’s the difference between residential and commercial investment? Consider residential property as a high growth, low yield investment vehicle and commercial property as a higher yielding but low growth investment. Commercial property tenants usually pay all the outgoings such as rates, taxes and insurance. Because they generally conduct their business from the property, they tend to maintain it well. Leases for commercial properties tend to be for longer periods, often three to five years. Most leases require the tenant bring the property back to its original condition at the end of the lease. That said, when vacancies occur in commercial properties, they are often vacant for considerably longer periods than you might expect from a residential property. Think about any vacant shops you may have seen.
