Commercial Property Investment: A Beginners Guide

There’s so much information out there giving top investment advice in the residential real estate market. It’s on TV, in the media, and there’s an abundance of articles and blogs online, but little is said about potential commercial real estate opportunities and what to look out for.
When we write about commercial property, we’re talking about office space, retail stores, industrial units and warehousing; basically any building or structure suitable for operating a business. This of course means that commercial investment opportunities vary greatly in size, location, and cost; but importantly, also in risk and return.

Return on Commercial Property Investment

Whereas residential property investment is generally regarded as a low risk strategy, the commercial property market is viewed as carrying a higher risk. However, this increased risk is coupled with an elevated potential return, usually averaging around 8%.

The Common Risks associated with Commercial Property Investment

The most common risk associated with commercial property is high vacancy rates. Whereas a residential property may take a few weeks to find a new tenant, securing a new lessee could take months. The potential quality of the lessee can affect the risk associated with commercial property investment. For example, blue chip lessee’s and government departments will reduce risk levels as they will usually rent the premises for long periods and never default on payments.

Lease Duration with Commercial Property

A business generally needs a long term location from which to operate and doesn’t want to be renewing every year like most residential leases. Moving house is usually costly and fraught with stress, but expenses associated with moving a business are commonly much higher. Therefore lease durations are commonly 5 years, with the option to extend afforded to the lessee. This means that although it may take longer to acquire a lessee than a residential tenant, they are usually locked into a contract for much longer. In addition, even if the lease is for 5 years, rent can still be negotiated on an annual basis. Finally, unlike a residential lease which can be around 10 pages, a commercial lease can be over 50 pages in length – it’s all in the detail.

Commercial Investment Success relative to Economic Performance

Whereas the residential property market is seen as relatively stable, the commercial market can be volatile. Everyone needs somewhere to live, but businesses can go under and vanish from the map. If commercial property is no longer desirable in an area, hard times could lie ahead if businesses begin to relocate. Commercial investment value is reliant on a thriving economy, and losses can be hard felt if an industry up moves because their business will perform better elsewhere.

High Initial and Ongoing Costs

Purchasing commercial property usually requires a higher initial outlay than its residential counterpart. Office space in the CBD is premium square footage and is priced as such; even shared entrances, janitors’ closets, and toilets are accounted when costing for rental. Similarly, associated maintenance costs are much higher than with residential real estate; however these are rarely the responsibility of the property owner. In addition, other ongoing costs which are usually paid by a landlord of residential dwelling are not the obligation of the commercial property owner, such as taxes, rates and maintenance, which reduces outgoings significantly.

If considering commercial property as an investment option, there are companies out there with expertise and local listings. Try if looking for commercial opportunities in Australia, Colliers in the USA or MoveHut if in the UK and find the right commercial property investment for your business.

18 Responses to Commercial Property Investment: A Beginners Guide

  1. Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow each financial year.

  2. Thank you very much for post the article. Really, it’s very good. I learnt a lot about this. I’ll try to apply your ideas and tips. It regarded hear a portion of the particulars of your exploration.
    if any one want to check the Best location of pakistan must check our site..

  3. Thank you very much for post the article. Really, it’s very good. I learnt a lot about this. I’ll try to apply your ideas and tips as well as
    Find a wide range of Commercial buildings for sale in Jaranwala Lahore with Pak Villas, Pakistan’s leading property portal.>>For More ideal properties visit Now

  4. Hi. Thanks for your recommendations and tips

    I’m a Mexican business man and one of my main customers is located in Texas. There’s this networking place where he usually arranges his meetings. It’s called Ranch Office. And based on the meetings I’ve attended there. It’s a cozy place in the Texas area. Are most Texas networking places this good?

  5. Thank you very much for post the article. Really, it’s very good. I learnt a lot about this.
    Find a wide range of properties in Pakistan with Pak Villas, Pakistan’s leading property portal.

  6. Financing commercial property can be a little more complex than a standard residential mortgage. Before you approach lenders, you may need to consider things such as progress payments if you’re planning on developing your property or that the commercial loan to value ratio is normally capped at 70%. Therefore, you will need to have access to more equity or a simply larger deposit if you are looking to invest in the commercial market. Your loan type will typically be shorter, so be aware that this will equate to larger repayments even on interest-only loans and valuation fees are typically higher on these properties.

  7. Informative!!!
    Great tips for those who want to invest in real estate industry. Commercial property has bigger returns than residential, one should consider these tips for investment. Thank you, I learnt a lot.

  8. Handrails, also known as banisters, are obviously important in staircases. Without them, of course, one might stumble while going up and down the stairs because it is where a person holds for support.

  9. Fantastic guide and Yes, It’s the most important thing that after investing in commercial real estate what you will get as a return. If you want to get return handsome amount as regular cash flow, then you just need to analyze the market properly. BTW, great article for beginners and thanks for sharing.Sell your home fast

  10. Hello, Thank you very much for post the article. Really, it’s very good. I learned a lot about this. I’ll try to apply your ideas and tips as well as possible.parc clematis

  11. This is some really good information about selling a home quickly. It is good to know that it would be smart to clean up your house as much as possible. I like that you pointed out that buyers most of the time don’t want to fix anything before moving into a new home. Personally, I wouldn’t even want to have to paint the walls.dimensions

Leave a reply

CommentLuv badge