Commercial Property: Decisions … Decisions?

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With Commercial Property you have so many choicesIT’S INTERESTING how many investors seem to “graduate” to Commercial property, after first starting out with residential property.

But when you think about it … that’s probably an understandable progression.

So, why would you Purchase Commercial Property?

Once you grasp even the basics of Commercial property, you quickly discover its NET yield is 2 to 3 times that of residential property. But more importantly, your tenants seem to stay 4 to 5 times longer.

Generally, there are two types of buyers for Commercial property:

  • The Investor, and
  • The Owner-occupier.

And while both of them are seeking a well-located property with good growth prospects … their underlying motivations and buying criteria are often quite different.

As a Business owner, your focus would be upon meeting the specific needs of your business. Things like … the size, features and proximity of the property to your major suppliers or consumers. The building may need to house sizeable equipment; and perhaps, allow for your planned expansion.

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But as an Investor, you are more likely to hone in on what the property is currently yielding; and the length of the present lease.

Then, you’ll seek to verify the calibre of the tenant; as well as the overall structure of the lease. And finally, you need to consider the re-letting prospects — in case the tenant vacated down the track.

In any event, you will find Investors are less focused upon the location of the specific property involved.

What are the Different Property Types?

With residential property, your choice is basically between houses and apartments. But with Commercial property, you have a number of categories to choose from across four main sectors.

Leaving “Infrastructure” aside, the principal types of Commercial property fall within the …

  1. Office Sector
    This ranges from multi-story buildings within the CBD, to smaller strata-floors in the suburbs.
  2. Retail Sector
    Ranges from regional & neighbourhood shopping centres, bulky goods centres, right through to strip shops.
  3. Industrial Sector
    Includes factories, warehouses, business parks and depots.

Bottom Line: Some properties may involve more than one sector — with office buildings having ground-floor retail space. And warehouses containing a significant office component.

But the real benefit with Commercial property is that you are spoilt for choice. And you can reap some handsome profits, as along as you make the right selection from the outset.

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