For some people, the prospect of considering an investment in the commercial property sector may be a little intimidating at first. However, with the right amount of analysis, research, professional advice and industry knowledge, commercial real estate can reap significant financial returns for the savvy investor.
When compared to investing in residential property, a commercial investment can also offer an increase in rental security due to overall longer lease times and less tenant mobility, with fewer outgoings.
In general, commercial investments usually offer a higher return on investment (ROI) when compared to residential real estate. According to a recent analysis by CoreLogic, depending on the asset class and risk rating, the average rental return for commercial properties is up to ten percent, whereas the average rental yield for residential real estate is just under four percent. Industrial property, such as warehouses, is often known to collect the highest yields, with office space and retail property also popular investment options.
When it comes to lease times, the average lease for a commercial premises is generally between three and ten years. This is a vast difference to a residential lease, which is normally only six to twelve months, with no guarantee of a renewal by the tenants. As a commercial tenancy is based on a business address, the tenant will usually elect to remain in the property for far longer than a residential tenant – particularly if they have invested money into the upgrade or customisation of the property fitout. This kind of financial outlay by the tenant will provide commercial investors with a degree of security when it comes to rental income. In turn, this reduced level of risk can assist with facilitating a cash flow plan.
If you are looking to put together an investment property portfolio, financial experts often agree that diversification is the key and is the most important component when striving to achieve long-term financial goals. Although it does not completely guarantee against loss, it does ensure that the chances of risk and financial vulnerability are greatly reduced, particularly when the market is in a state of flux.
Before embarking on a commercial investment venture it is vital to research the market. Investors need to consider a number of micro and macro economic factors when investing, such as how the market can dictate differing rental yields from one area to the next. It is imperative to seek quality expert advice from commercial real estate professionals that are familiar with local market forces.
Investing in commercial real estate doesn’t have to be a daunting prospect, if the correct amount of planning and research is undertaken initially. It can be a fantastic way to diversify your investment portfolio, as well as yielding a high ROI when compared to investing in residential property. It can also provide lower risk and a greater degree of financial security in the long-term. To learn more about the benefits of commercial property investment, consult Altegra Property Group, your commercial property experts, today on 9221 1966.