Commercial investment - which type best suits youTo help you navigate commercial property investment complexities, we have explored the four main types of commercial real estate commonly available; retail, office, industrial and apartments.
Investing in commercial property can be complex, the investment is generally larger than residential, but so too is the risk. Due diligence will be time consuming and needs to be detailed, but there is no reward without risk. In the long-term, commercial investment can return big dividends.
But you need to know your comfort level with risk and what type of investment best suits your needs - here we take a brief look at the top four commercial property contenders:
Retail property covers a broad range of business activity, all consumer based, from a suburban strip mall to a major shopping centre. Retail includes cafes and restaurants, hairdressers, service stations, shops and gyms.
Location is crucial to the performance of this type of investment, more so then other investment types, and it's the location that will determine the rent per square metre. However, the demand for retail space has multiple drivers including anchor or neighbouring tenants, visibility, population density, population growth and income levels of the surrounding area.
The performance of retail property is influenced by the wider financial landscape and consumer confidence. Retail fit-outs are likely to change mo re often than other property types but are usually of a high standard.
Often referred to as the flagship properties in an investment portfolio, generally due to their location in inner city spaces or suburban office parks. Commercial office space is typically used by professional and government service providers. Long leases are usual and generally attract a higher quality of tenant. Professionals will demand a high quality fit-out that can be costly, but is less likely to need regular refreshing, like retail.
Do factor in the potential cost of dividing or opening up internal spaces, air-conditioning, internet services and security. Car parking and access to public transport will also be a top consideration for tenants.
A well-researched office property purchase should provide solid returns, higher than you would receive on cash interest rates, and should return good capital growth.
Often industrial property has a smaller investment, is easier to manage and has lower operating costs than its office and retail cousins. Industrial property covers buildings used in the manufacture or storage of goods, or spaces where machinery is used. Industrial property generally has a greater cash return than retail. Lease periods are typically longer due to the specialised and often customised nature of the fit outs. Wear and tear on the building is likely to be higher.
Many factors contribute to a high-performing industrial investment including functionality, ceiling height, location relative to major transport routes, office space versus warehouse area, and the outdoor or covered yard space.
Generally, economic expansion favours this sector with more demand for space due to more production and jobs. Yields can fluctuate depending on supply and demand, and the characteristics and location of the property. A secure quality tenant will always add value to a property. Often the capital growth can be lower than other commercial property types.
Otherwise known as multi-family dwellings, these provide a steady income source if managed efficiently. Unlike other investments - one tenant leaving is unlikely to have a major impact on your bottom-line, thus this investment type is considered more stable. Demand will generally stay strong despite the economic climate - people always need homes.
Higher property management and tenant turnover can create additional work compared to other investment types.