Is a Commercial Property a Good Investment?

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Investing in a commercial property in Canberra can be incredibly fruitful. This is because they have the potential for higher cashflow than other kinds of properties. Although more complex than the world of residential property, commercial property can be an equally profitable property for your portfolio. So to help first-time investors and commercial property owners, here are a few things you should know: 

 

What’s the Difference Between Commercial and Residential properties:

The main difference is the purpose of the buildings; residential properties are rented as homes and houses, while Commercial properties host businesses. But the two vary in a number of other ways.   Firstly, the lengths of the lease differ, and vacancy periods tend to stretch much longer than residential properties. One of the biggest differences is the terms of the lease, residential leases are more or less similar.  Yet commercial leases can differ drastically with almost all terms are up for negotiations. Another difference with commercial properties is that tenets are often responsible for paying council rates, insurance, land tax, maintenance and repairs, while with residential properties these are the landlord is responsible.

 

But the real question is, which kind of property brings in the higher rental yield?

Generally, commercial properties offer between  5% – 12%, while residential properties tend to deliver yields somewhere between 3 and 4%. But 

 

Pros of Commercial Properties

 

  • Higher returns on investment – as mentioned before, when being leased, commercial properties offer a higher return than other property investments. This makes them an extremely profitable investment once leased. 
  • Longer leases – longer leases also offer more security for property owners as your buildings as they often last anywhere from 3 to 10 years. Similarly, if your tenants chose to decorate or customise the property, this may raise the overall value and attractiveness of the property.
  • Smaller deposits – as Commercial properties are generally lower priced compared to residential properties, so you need a smaller capital outlay. This means they can be a great way to first get into the market.
  • No rates and other outgoings – once you have found your tenants, and depending on your contact, they are mostly responsible for all other costs including; council, water and body corporate fees. 

 

Cons of Commercial Properties: 

 

  • Commercial properties are sensitive to economic conditions – as you are leasing to business, your property will flourish along with good business conditions. Ultimately need for business offices and commercial property will rise and fall with the economy.
  • It takes longer to find a tenant once it becomes vacant – Because of the long term lease agreement, finding a tenant becomes trickier as they have to envision a space they need as their business grows and changes across the years.
  • Changes in infrastructure in the area can be detrimental – as the area changes around your property it may, in fact, change the property itself. Be aware of the place you are investing in as this may dissuade tenants.

 

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