The Benefits and Risks of Investing in Commercial Property
If you mention the words ‘investment property’ in conversation, many people will automatically think you are referring to residential homes. This is hardly surprising when you consider the amount of talk in the media about the price of houses and apartments, and the plethora of lifestyle TV shows about residential investments and improvements.
However, investing in commercial property is an option that can come with a number of advantages but also it with its own set of risks.
Advantages of commercial property investments
- Higher rental returns
- Industrial property in particular provides very strong returns up to 12%
- Longer leases from 3 to 10 years, compared to the 6 to 12 months in residential property
- Lessees have a higher vested interest in keeping the property in top condition, especially if they have invested their own capital into the premises
- Costs such as maintenance, rates, insurance and other outgoings are usually paid by the lessee.
Risks of commercial property investments
- Potential for longer vacancies with commercial properties more subject to market conditions and variations
- GST applies for commercial properties, for both purchasing and rental income (if registered and under certain conditions)
- Property values do not always increase as a commercial property can fall in value if it is no longer attractive to tenants
While commercial property investment is not without risks there are some great rewards to be gained, especially for investors who are savvy and put effort into considering such aspects as location, local infrastructure and securing top tenants.
It’s also important as a potential purchaser to be aware of the various stages of the property cycle – price growth, peaks, moderation and stagnation – so that you can buy at the right time depending on the outcomes you wish to achieve.
In any case, making time to speak to professional property consultants is important when considering purchasing commercial property to help ensure you get the best out of your real estate investment and to mitigate against the ever-changing risks involved.
To learn more about the commercial property market and why the addition of a commercial property to your investment portfolio may be a sound investment for your future feel free to contact us.