Considering a Commercial Property Investment? Start here:

Read on below for a guide to getting into this investment sector, including pro's and con's and what you should look for when starting out.

Commercial property is a popular investment sector. Do you plan on investing this year?

While there won't likely be a large group of people be buying or selling commercial property in the coming weeks given all that is going on around the world, there will be owners who for various reasons will still be motivated to sell.

Perhaps they have already purchased another property and need to sell their current one to settle. Or perhaps they have had a sale planned for a while and need to continue pursuing the sale for business reasons regardless of the greater environment.

Given this, we thought it would be timely to share a few tips, presented by leading global property group, Savills.

According to Savills, the following pros and cons are relevant to investing in Commercial Property:

PROs

• Strong rate of return on capital invested: Commercial property generally provides higher ROI (8-10%) 

• Secure income stream 

• Typically structured rental increases are included in lease agreements  

• On average longer lease period. An average lease period for commercial averages from 3-10 years, whereas average leases for residential averages 6-12 months 

• Price appreciation: lease agreements often contain a term for rent increases in accordance with inflation 

• In most cases, leases are transferable

• Tenants normally add value: incentive to make improvements. Improvements raise the value of your commercial property, which may lead to a commercial property owner able to charge higher rates to later tenants  

CONs

• Untenanted periods: Loss of income due to vacancy

• Difficulty to repay debt due to income reduction  

• Fit-out contributions and incentives (rent-free periods) 

• Broader economic conditions impacting tenants ability to pay rent (economically vulnerable)

• High exposure to outgoings (land tax, council rates, water & electricity)

• Capital works required to upgrade the building. Façade, roof, services and complying with BCA standards. 

• Change of laws governing operating hours (for example lock out laws)

• Capital gains tax and transaction costs

What Should I be Looking for?

If the PROs stack up for you, according to Savills, this is what you should look for when investing in Commercial Property:

1. "Location

2. Size 

3. Building condition and certification 

4. Is it vacant or leased 

5. Length of lease and structured increases

6. Supply and demand in the suburb/area 

7. Is the current tenant paying market rent?

8. Rental growth projection 

9. Vacancy rates 

10. Outgoings 

11. Planning controls and develop ability 

12. Analyse the surrounding tenants or neighbouring properties

13. Demographics servicing the tenure or future tenure of your investment, it's import to analyse statistics, population, average household income and household structure

14. Surrounding infrastructure and future upgrades  

15. When was the property was last sold? 

16. History of capital growth 

17. Recent comparable sales, compare what properties like yours have sold and at what price

18. Current competition, consider the price of other properties that are currently on the market and how they compare to yours

19. Unique selling points, what distinguishing features sets your property apart from the rest?"

Commercial Property Sales Strategies

There are different types of commercial properties, and each property within in type are different as well. Depending on the specific property there may be more suitable ways in which to sell a commercial property. (And if you are not selling, it is still good to know what the terms mean when buying.)

Sales strategies may include:

Expressions of Interest: An expression of interest is a marketing campaign to sell a property without a price with all the benefits of an auction while being able to assess all offers in a private setting.

Auction: An auction is when prospective buyers gather to bid on your property. The highest bidder at the end of the auction becomes the successful buyer, provided the bid matches or exceeds your reserve price and the successful bidder purchases the property on an unconditional contract.

Private sale: This is when you set the price you would like your property to sell for, and your real estate agent negotiates individually with prospective buyers to achieve a sale as close to this price as possible.

Off-market: An off-market transaction usually relies on the agent talking to potential buyers one at a time, with no marketing of any kind to the public.

Commercial Property: Tenant Search Strategies

Once you have purchased a property it may already be tenanted with a lease in place, or you need to get out there and get a tenant in asap in order to start earning returns on your money.

As per Savills, the following channels provide a commercial property owner the best platform to secure a suitable tenant for their holdings. 

• "Signboards – Property signboards are the local cornerstone of your property marketing campaign. Large format and sitting front and centre, the signboard signals your property is for sale and attracts the attention of all potential buyers

• Brochures – Showcase your property’s unique selling points and stunning photography with a set of brochures to engage potential buyers

• Digital advertising – Property listings on realcommercial.com.au and commercialrealestate.com.au target a massive database of potential buyers. There are additional advertising options on both of these platforms that your real estate agent can discuss with you

• Print advertising – Extending your campaign into print can bring more page views to your listings. Options can include advertising in local, national and international publications and specialised targeted publications"

Read the article (and other new from Savills) in its entirety here.

Please let us know if we can help in any way to get your private, bank, or non-bank finance needs sorted.

Are you looking to purchase commercial or industrial property within Australia and require private financing? Read on below:

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