What Type of Commercial Property Should You Invest In?

 

Once you’ve decided you want to invest in commercial property, the next piece of the puzzle is to decide which type of commercial property. Will you buy a shopping center? An industrial warehouse? An office? These are the three main types of commercial investment property, and there are important differences the commercial property investor should be aware of.

Retail Property

A major shopping center would generally be too big and expensive as a first investment. Suburban strip shops or small retail buildings located in sound country towns and cities are more likely to suit small and medium investors initially.

If it’s difficult to find quality freehold or standalone retail property at prices that fit within your budget, you can also consider retail strata units.

There are several things you’ll want to look for when choosing a retail investment property. Firstly, a good location is always important. As you’ve no doubt heard, when dealing with property it’s ‘location, location, location!’ You want to be in an area with adequate car parking and lots of pedestrian traffic. Why? Because pedestrian traffic equals business for retailers and business pays the rent – and the rent directly affects your property’s value.

A strong retail investment will have a quality tenant and a sound lease. A vacant property is your biggest potential drawback when investing in retail property. Ensuring your property is located in an area of high pedestrian traffic flow reduces your risk of having a vacant retail property, since retail businesses generally do well in these locations.

If looking for retail properties located in the city, try to find those located near train stations. Local governments often support the development of residential properties around train stations, and residential development will increase pedestrian traffic.

Industrial Property

One of the main reasons why a new or inexperienced investor would disregard industrial property is because it is often not very ‘pretty’ to look at! In previous years industrial property was almost completely dominated by manufacturing premises – but now it’s largely warehouses and distribution centers with an office and sometimes a showroom component. These properties are usually cleaner than manufacturing premises – if this is important to you as an investor.

Industrial property is often strata-titled, which makes it very affordable for the small or medium investor. When selecting an industrial investment property you would look for a building with clear span (as opposed to a building with a large number of pillars taking up floor space), high ceilings, and wide access doors, as these specifications will appeal to most industrial tenants.

Always remember that with industrial property road transport access is critical for the smooth, efficient flow of goods, both in to and out of the premises. You’ll want to find a building that is located near, and offers good access to and from, the major highways. Be sure that large trucks and semi-trailers can easily manoeuvre in and out of the lot without having to back-up. This can make corner lots extremely attractive.

Offices

A small freehold or standalone building or strata suites are the most likely choice for investors who want to purchase offices. Keep in mind that when the economy is strong, there is usually keen competition in purchasing offices because business owners are looking to purchase their premises rather than rent them. This is the main reason why offices are often offered for sale without an existing tenant.

When you do purchase a strata office with a tenant, you will usually get a true net return – where the tenant pays all the expenses for the property. Be sure to verify this in the lease documentation.

A major advantage of a freehold or standalone building is that there is potential to redevelop the property in the future for greater capital gains – while a strata suite often has very little land content, so you simply don’t have that option. Also, with strata property you don’t have sole control in the decisions affecting the property.

 

 

 



Real Estate Professionals