THINKING OF INVESTING IN COMMERCIAL PROPERTY?
Maybe you’ve invested in residential property and see commercial property as the next step in increasing wealth. Or maybe you’re a business owner looking to invest in commercial property to expand operations. There’s no doubt Australia has a dynamic commercial property market, with considerable opportunities for investors of all shapes and sizes.
The main benefit of investing in commercial property is the longer average lease length when compared to residential property. These are typically three, five or ten year agreements and these include fixed or CPI rent increases each year.
Three of the most common reasons for buying a commercial property investment are:
- Capital growth potential
- Income or rental return
- Strategic or development purchase
As with residential property, it’s land that appreciates, while buildings and their improvements depreciate. However, the risks and challenges commercial investors face are more complicated than residential investors. In Australia, commercial property has a history of unpredictability. The market has been influenced by numerous economic factors, such as consumer confidence, trade and currency fluctuations, manufacturing costs, and unemployment.
Although there is potential for longer vacancy rates when the market is on a downward trend – as has occurred in Australia’s retail sector – there has often been sharp returns followed by growth opportunities. It’s also important to note that some financial lenders have strict lending conditions, often requiring buyers to provide a 30-50% deposit on the sale price.
A motivated property investor isn’t the same as a property investor who understands their motivations. In short, commercial investment isn’t about quick gains over a year or two, but sound strategic decisions with stable, long-term rental returns.