KNOWING THE COMMERCIAL PROPERTY LANDSCAPE
The opportunity to purchase commercial property is something many Australian investors are taking up. Undoubtedly it requires considerable research, to find out what’s available, at what price, and the current market situation. There are a number of commercial property types and factors which influence their return-on-investment potential.
OFFICE
A commercial office space is generally used by professional service providers, such as financial, legal, marketing, administrative or consulting services. Office spaces – whether it’s whole buildings for corporate companies or small boutique offices for design agencies – typically attract higher quality tenants. They’re more likely to:
- sign longer lease agreements
- maintain the building
- fit them out to a high standard
Office properties are viewed as stable investments because falling markets tend not to affect tenancy rates.
RETAIL
Retail property is defined as a space used specifically to promote and sell consumer goods or services. Their location is typically among other retail outlets, such as shopping centres and shopping strips. These could include:
- clothing, home wares and electronic stores
- restaurants, bars and cafes,
- individual services like hairdressers, mechanics or gym studios
Retail properties demand higher rent per square metre than other commercial property because of the importance of position and foot traffic. Although there have been fluctuations in Australia’s retail clothing sector, a surge in cafes and restaurants have created more stable tenancy rates.
INDUSTRIAL
Industrial property is defined as property used for manufacturing, storage or transporting purposes. It includes warehouses, factories, workshops, container and shipping yards, and research facilities. Industrial properties are often customised with:
- loading docks and roller doors
- transport vehicles
- machinery and robotics
- packing and storing facilities
- offices and conference areas
In Australia, industrial properties generally provide a greater cash return than retail or office investments because of the specialised nature of fit-outs demand longer lease agreements. However, their construction and maintenance costs can be considerable.
A vital characteristic of many industrial spaces is clear height, which is defined as “the maximum height that products can be stored or transported in a particular building without encountering obstructions such as fire sprinkler heads, lights or structure”. A clear height of 40+ feet will create greater demand from potential tenants.
LAND DEVELOPMENT
Generally seen as capital intensive and speculative in nature, commercial land developments offer ‘big picture’ opportunities for investors. It often involves the demolition of existing buildings and the commencement of long-term construction projects. Once an area is developed, the two most important questions are: will it attract tenants and will it create value over a long period?
Australian capital cities are undergoing a surge of high rise developments – where inner city land is at a premium, the only way is up. Institutional and private investors make up the lion’s share of these projects, though relatively smaller developments in inner-suburban areas have seen individual investors also become involved.
COMMERCIAL FARM
A commercial farm is a well-established farming operation which generates income. Generally, a commercial or working farm is 100+ acres and the areas are used for either cropping or grazing – where plants and livestock are used in the production of grains, dairy, wool and meat products.
Infrastructure such as silos, sheds, dams, water pumps and feeding stations are usually included in the sale price. Australia’s rich agricultural areas and high overseas demand for its food products have led to significant purchases from institutional and private investors in the last few years.