Investing in Commercial Property

Considering the uncertain nature of world stock markets and the relative solidity of the Australian real estate market, you might be thinking of purchasing commercial property as an investment.  First, make sure you understand the difference between commercial investment property and residential investment property.
For commercial property, think business use and for residential property think personal living use.  Both provide the investment benefits of long term capital appreciation and short term rental income.  If you own your own business you might benefit from buying a building with enough space for your own use and additional space to be rented out to tenant businesses.  Similarly, rather than living in a single family home, you could buy a multi-flat building and live in one unit and rent out the remaining units.  

Although commercial properties may be a bit more difficult to find – especially “bargain” properties – they have a significant advantage over residential properties in two areas that bear mentioning.

Commercial Leases

Business owners want the security of a long term lease when renting space which can be extremely advantageous to the building owner.  One of the major headaches of owning and managing residential investment property is tenant turnover.  Many commercial property leases are structured to allow annual rent increases pegged to the inflation index.

Upkeep and Maintenance of Commercial Property

Since commercial renters are doing business within the space, they tend to take better care of it than do many residential renters.  Property destruction within residential buildings is a major concern.  Commercial renters leave your building in good shape and although there is often a cost associated with reconfiguring the space for a new tenant, that cost can be negotiated in the leasing process.

Finding Commercial Property

Start by contacting professional real estate agents who specialize in commercial property.  There are differences involved with the purchase and financing of commercial properties that in the opinion of many make working with a professional commercial broker or agent an absolute must.  As is the case with residential property, location is a key concern when finding commercial property as well.

Proponents of buying residential property as an investment over commercial property tend to cite the length of time it can take to get a new commercial tenant.  Others point out that the better the location; the easier it will be to rent vacant space.

Commercial property out in the middle of nowhere with no amenities surrounding it severely limits the types of businesses it will attract.  Employees have to eat lunch somewhere and many prefer to go out for lunch, with eating establishments within walking distance.  Similarly, employees like to be able to shop on their lunch breaks or before or after work; so a commercial property in the middle of a shopping and restaurant district may be ideal.

However, pay attention to parking availability as well.  Some attractive in-town locations are extremely limited when it comes to employee parking nearby.  Good access to major transportation routes is another location variable to keep in mind.

As is the case with any investment, you need to do your “due diligence” before buying.  While the Internet is a good source of information, nothing replaces the advice and counsel you’ll get with a quality commercial real estate professional.  Don’t rush the interview process of potential agents just to get started quickly.  A good agent should be able to work with you on appropriate financing, evaluating potential properties, tax benefits, and operating costs.  Good luck in your purchase of commercial property!