No need to fear commercial sector
Property investors can sometimes be unnecessarily cautious about dipping a toe into commercial waters. Would you consider taking your first dive? Have conversations with the experts in the field but this may help get you thinking.
#1 Know how much money you have to invest.
Start with a clear picture of your finances. Sit down with a finance broker, who will be familiar with the intricacies of commercial property finance and can help you understand your borrowing options and the financing process.
#2 Not all commercial property types are the same.
The commercial real estate industry offers a wide variety of asset types, which are typically classified into four main sectors: office space, industrial, multi-family and special purposes. The supply and demand, yield, and overall profitability of each type of property greatly vary.
#3 Understand market drivers.
Demand is a fundamental driver for commercial and residential property growth alike. However, demand for commercial properties is driven by different economic and social factors. A strong economy is key to any successful commercial real estate investment.
#4 Interest rates
The Reserve Bank of Australia (RBA) uses interest rates to control the country’s inflation. The principle is that upping the cash rate helps in slowing growth, because the cost of money is higher and the rate at which firms can grow is reduced. This can have a slowing effect on the demand for commercial property. And vice versa.
#5 Infrastructure development
Major infrastructure changes can have a good impact on commercial property returns and attract commercial property investment to an area.
#6 Demographics
As different population sectors move to different locations, new opportunities open up for commercial investing. For example, ‘sea change’ among baby boomers increased the demand for healthcare services.
#7 Population growth
A scenario: new suburb established, shopping centre services the increasing consumer demand, then comes the need for support services and office spaces follow suit., followed by greater need for warehousing and retail outlets as increased consumer spending boosts product demand.
#8 Understand the risks.
A commercial property investment can be a lucrative venture if you do your due diligence. With the expertise of the property manager and the right tenant in place, it may require very little of your attention.
SOURCE: RE/MAX Australia
