Why you might invest in commercial over residential property

CommercialTuesday 13 January 2015

When considering property investment, one of the first decisions you need to make is whether to invest in commercial or residential property. While traditionally investors have been attracted to the relative safety and low entry costs of the residential market, many investors are now choosing to turn to commercial property investment.

While there can be an element of risk when it comes to investing in commercial property because of the higher financial outlays, the benefits can certainly make up for it.

So why should you consider investing in commercial property?

Strong yields

While the initial outlays of purchasing a commercial property are higher, the return you can expect to receive is also higher. According to figures published in the Australian Financial Review, you may roughly expect yields of between 3 and 6 per cent on freehold titles for shops, yields of up to 9 per cent for offices on strata title and yields of between 6 and 10 per cent for industrial properties.

There is also room for strong capital growth, particularly when purchasing properties located in new suburbs and attractive high growth areas.

Attractive lease periods

Residential property can have a high tenancy turnover, thanks to relatively short-term lease periods of six to twelve months. Commercial property leases generally have a minimum lease period of three years, but depending on the type of property/business, minimum lease periods can start at 10 years, giving investors the financial security of a regular rental income for a lengthy period of time. Commercial leases generally will have rental increases linked to the consumer price index or a set percentage each year already built into them, saving you or your commercial property manager the drawn out process of negotiating rental increases.

Tenants responsible for outgoing payments

When it comes to commercial property, the often-expensive ongoing costs such as rates and repairs are generally the responsibility of the tenant, as opposed to residential properties where the cost is borne by the landlord.

Commercial tenants are also responsible for the costs of any changes they wish to make to the building or property, and to also return the property to its pre-lease condition when the time comes to vacate.

If you are considering adding to your investment property portfolio, it’s vital to purchase a property that will best help you achieve your financial goals.

Speak to one of our experienced and professional commercial property consultants here at Burgess Rawson, 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.