It may seem daunting at first to invest in a commercial property, but the rewards are far more satisfying than investing in residential properties. To start with, residential properties yield only 1-3% on average, while commercial properties typically yield up to 4-5% average. Commercial properties also have longer leasing terms and increasing rental terms, which account for the higher yield.
The trick to investing in commercial properties is to make the necessary preparations so you can enter the market in the best possible position.
Commercial properties include office and retail space, industrial buildings and alternative sectors like medical buildings and data centres.
If it’s going to be your first commercial investment, it’s important to understand the property’s usage, market and location before buying. A good location, good transport and potential for future development are all things to look for in any commercial building.
Assess the property’s viability for the purposes it will serve. For example, natural light is desirable for an office space, while parking or passing foot traffic may be important for retail and medical facilities. Industrial buildings would factor in the ease of loading and delivery of goods.
Know the Risks:
Getting to know the property’s location will give you an advantage in deciding whether a property is suited to your purposes. Check if the area is evolving positively each day you drive through it, or if you notice a lot of turnover. Also, if there are many empty properties in the area, it might be a sign that tenants are hard to attract because the location isn’t desirable.
Still, having a good location doesn’t necessarily mean the property is a good investment. Examine whether the current tenant is a strong business. Otherwise, there will be some risk involved in purchasing that property.
Get Experts to Help You:
Because commercial property contracts are more complex than residential ones and leasing terms bind you to long term commitment, it’s essential to have a good commercial lawyer during the buying process who will assist you as well in negotiating fair terms.
A leasing agent to provide advice on a property’s rental profile and a property manager to handle day to day running of the building and find new tenants when needed would also be invaluable tools.
Future Proof Your Investment:
One important factor to consider is inflation. You must be sure that if, for example, predictions for a rise in inflation are at 2-3%, then you should have fixed lease escalations of a minimum 3.75-4%.
Sustainability is now also a very important investment factor as the commercial sector moves actively toward net zero goals. Properties with strong sustainability (5-6 star energy ratings) are more sought after and better priced.
Listen to Your Tenants:
The biggest mistake new commercial investors make is not reacting quickly enough when tenants leave. You must be flexible in accommodating your tenants’ needs. For example, if you start losing tenants because you aren’t willing to upgrade certain parts of the building that they feel you should, or if your tenants tell you the market is offering a 30% incentive but you continue at 20%, you’ll have a hard time filling in your spaces with new tenants. You must work in collaboration with your tenants because at the end of the day, your tenants are a source of your income.
Hopefully, you’ve enjoyed and learned much from our tips on how to find the perfect commercial property. Commercial properties may seem intimidating compared to residential properties, but with an open mind to learn and experience this type of investment, you can reap far greater financial rewards than investing in residential properties.
To learn more about business property for sale in Melbourne, or to buy commercial properties in Melbourne, get in touch with National Brokers Network. NBN has been serving Australians in all kinds of real estate needs for over 60 years. Get FREE professional advice on your property and a FREE updated appraisal to know your property’s market worth. Contact us today.
National Brokers Network:
17 Terrain St., Greenvale
Victoria 3059
Phone: 03 9226 9222
Email: info@nationalbrokersnetwork.com.au
Website: https://nationalbrokersnetwork.com.au/
