When looking to invest in Commercial Real Estate, there are a wide variety of options to consider, and each requires thorough research to determine which is best suited to you and your investing style.
Each sector of Commercial Real Estate presents its own pros and cons.
IS IT A GOOD INVESTMENT?
Firstly, consideration needs to be given as to whether a commercial building is a good rental investment.
Typically regarded as less risky compared to its residential counterpart, a commercial investment property usually encourages higher rental returns, longer lease periods, and the reimbursement of your typical outgoing costs such as council rates, water rates, insurances, and Owner Corporation fees. That said, there is usually a requirement for a higher purchase deposit and longer vacancy periods.
These can all depend on asset class and where you have bought the premises.
Commercial Real Estate can be broken into 3 simple categories:
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Retail
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Industrial
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Office
RETAIL
Retail Strengths
As retail properties are usually in premier locations you will typically realise a level of capital growth.
Post COVID-19 lockdowns, this class is beginning to recover with rental income returning to full capacity and enquiry levels increasing substantially as the market begins to settle. This asset class also offers the broadest level of flexibility as an owner, allowing you to alter its permittable use from a retail strip shop to a café/restaurant. This allows you a wider range of tenancies, which in turn can add significant value to the property.
Retail Weakness
Retail premises can sometimes suffer from extended vacancy periods.
This can occur for many reasons including a current fit-out that does not suit a prospective tenancy or business, lack of appropriate applications, or location suitability for specific business applicants. Tenants of this asset class are also beginning to look at alternate options such as working from home and industrial locations also resulting in vacancies and or rental reductions.
Industrial Estate at Bravo Loop Pakenham
INDUSTRIAL
Industrial Strengths
Industrial premises can prove to be a simple investment option as typically you offer the space, and the approved tenant will do the fit-out appropriate to their business model. This can remove the onus on a landlord to manage such items as floor coverings, petitions, and sometimes air-conditioners. They are fitted by and remain the tenant's asset, not yours.
Industrial premises can also be a more secure option as the opportunity to re-lease and experience high-level enquiry is typically greater than the other classes, especially in this COVID-19 recovery timeframe when online shopping has increased expediential and the need for space for tenants is greater than previously seen.
Industrial Weakness
Typically, a lack of capital growth as any internal fit-out provided as a landlord may not provide any increase to the assets likely rental return, or re-sale value.
Commercial office space at 2/29 Woods Sreet, Beaconsfield
OFFICE
Office Strengths
Usually, office investments are a strong and competitive market as they hold value when either tenanted or vacant. They can also add capital value with fit-out additions such as partitions, air-conditioners, and in some cases a basic office fit-out.
As an investor, you can also secure high-quality tenants and leases as good office locations remain highly sought. This asset also allows the opportunity to offer leasing incentives such as rent-free, fit-out contributions, etc. to secure new tenants; something that isn’t typically beneficial in other asset classes.
Office Weakness
In the current market, which is still recovering from COVID-19, this asset class is struggling as many people and companies are continuing the trend to work from home. This has made the office asset class one that is particularly difficult to secure a tenant at the present time.
If you're looking to invest in commercial real estate, contact our experienced commercial team for assistance.
