A commercial property is an attractive investment you can add to your real estate portfolio. It is important to state that rental yields in West Australia and NSW are much higher in the commercial real estate market – around 4% to 6% annually.
The average retail rent of shopping malls in New South Wales was recorded at $1,683 AUD, by the third quarter of 2022. Another survey states that industrial property rents are expected to rise by 2.8% in Australia in the next 12 months.
If you’re wondering what makes a property commercial, here’s everything you need to know.
Contents
What is Commercial Real Estate?
Commercial real estate is a potential market for generating profits through either rental or capital gain. A commercial space can be anything from a restaurant to an office building or a warehouse in a particular location.
Property owners can make substantial income by leasing or reselling the space. The rate of returns is significantly higher compared to residential leasing. It has been showm that when renting for business purposes, tenants are more likely to be accountable.
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What are Types of Commercial Real Estate?
- Office Buildings: Urban commercial spaces are found in metropolitans, featuring skyscrapers and high-rise properties. Suburban office buildings are smaller in size, often grouped into office parks and may or may not have multi- or single-tenants.
- Retail Blocks: A retail property accommodates businesses like restaurants and retailers. Different types of retail spaces attract specific foot traffic, like stand-alone properties such as shopping malls or single tenant buildings, including big box centres.
- Industrial Properties: Such buildings are used for mechanical operations, including light assembly, storage, and bulk warehousing. Located near major transportation routes, these low-rise buildings can be a mix of both industrial and office space.
- Multifamily Sector: This sector covers residential real estate like apartment and office buildings that may be high-rise, a walk-up, or a garden-styled development. Such properties also include housing options for a particular population segment.
- Hospitality Sector: Such commercial properties are often hotels and resorts that provide meals, accommodation, and other services to tourists. Hotels may provide full-service amenities, like an on-site restaurant or concierge or limited services.
- Special Purpose: Special-purpose facilities in the commercial real estate industry often consist of churches, bowling alleys, amusement parks, and more. Such spaces are meant for public utility or could be a self-storage facility for the state.
Identifying a Quality Asset in Commercial Real Estate Market
Both commercial and residential property investments can have extensive lease terms and high rental yields. But investing in commercial property offers you capital growth at or above inflation for a long period.
To qualify a commercial investment, may it be for the retail sector or a group of industrial buildings, there are certain things to keep in mind.
Location is Critical
With any commercial property investment, proximity to specific amenities and infrastructure is essential. Commercial properties (like an industrial park) must have access to modern transportation facilities like the rail network.
The property location should also be close to residential housing units, and other local amenities for staff and personnel to use, like affordable dining and retail options, including health and wellbeing, and fitness centres.
Excellent Infrastructure
A quality building is graded for its physical quality, floor planning, location, and type of fittings inclusive in the design. Most A-grade properties have access to great natural light and air quality, and a high quality finish.
Commercial tenants also compare a building’s environmental performance, by measuring it against the National Australian Built Environment Rating System. Such features go a long way towards ensuring consistent tenancy.
Type of Tenant and Profile
Commercial properties attract all kinds of multinationals, a mix of tenants, including small businesses, government agencies, and other blue chip tenants. The lease terms are between 5 to 10 years – sometimes longer, attracting a mix of businesses that may grow and expand their footprint within a commercial complex or building.
Opportunities to Add Value
Identify potential gaps when analysing an asset with the help of a commercial property lawyer. You might recognize some opportunities to make a few incentives. For instance, expanding your floor space to accommodate the needs for a tenant during a phase of expansion.
Calculate Rental Yield
Rental rates typically rise when leasable space is scarce but the tenant demand is high. As a result, rental income is an effective parameter to understand your return on investments for that specific property.
Keep in mind that rental yield is subject to fluctuating economic trends, commercial developments, competition, and infrastructure changes. As a result, both commercial and residential properties sre vacated during this period.
Investing in a Commercial Property
Find an Unlisted Property Fund
An unlisted property fund is a type of investment that gives investors access to high quality, institutional grade, commercial property assets at minimum investment. Unlisted property funds are either open ended real estate assets with no fixed term or close ended assets with a fixed term, and generally without liquidity.
Explore A-REITs (Australian Real Estate Investment Trust)
Such entities invest in a portfolio of property assets, generating the most income through rent, where a major portion of this income is returned to investors.
Buy a Commercial Property Yourself
Investors can purchase commercial properties directly, but this requires intensive research, a fair amount of documentation, and fact-checking. You’ll also need a surveyor to inspect the condition of the property, whilst understanding market trends.
Key Takeaways
- Commercial properties are defined by their use for business activities, including office buildings, retail spaces, industrial facilities, and special-purpose structures.
- Key factors influencing the commercial status of a property include its location, accessibility to transportation, and proximity to amenities.
- The type of tenant and lease terms are significant, with commercial leases often longer than residential ones, providing stability.
- Identifying opportunities to add value and calculating rental yield are crucial for maximizing investment returns.
- Investors can explore various avenues like unlisted property funds, A-REITs, or direct purchases, each with specific advantages.
Want to Invest in Commercial Properties?
Leah Jay offers a range of property investment services to simplify your rental experience in the Australian real estate commercial market.
Whether you need help with commercial leases or some other commercial investment, talk to our experts. Our real estate team has experience with the rental landscape in Australia, and would be happy to answer all your queries.To understand commercial property management, call us today.
