Perth is the largest city of Western Australia with an estimated population of 2.02 million living in greater Perth. The economy of Perth dominates the western Australian economy as its suitable location creates a development opportunity for many businesses.
Its commercial real estate market ranked amongst the top three in Asia Pacific region. With such situation, cross – border investment into Australia, particularly in Western Australia was the highest of all the APAC markets between 2012 and 2014 which clearly states that Australia has become a perfect investment destination.
The first and foremost task for an investor is to decide the type of investment- commercial or residential. If the investor is interested in diversifying his property and also wants a cash flow injection, then a well-located commercial property would be the best option for him. In such cases, the investor has to carefully understand the risks involved. Although Perth is a suitable location for investing in commercial real estate, but a potential investor should be aware of the various risks before investing.
Many investors tend to invest their money in residential properties as they are familiar with it. Some rent their property whereas some but a house or unit to fully understand what that experience entails. On the other hand, investing in commercial properties can be a little tricky but it is an increasingly valid investment option for maximum number of buyers in Australia. Following are the risks to be considered before buying a commercial property.
Commercial properties are usually very sensitive to economic conditions. It is the situation of the economy that decides the demand for commercial properties. When the economy is booming, the demand for commercial properties rises. On the other hand, when the economy faces a downfall, the demand for real estate’s also goes down. Thus, dramatic economic conditions can create risky situations for investors to secure their money in commercial properties.
Although commercial real estate seems to attract long-term leases of three to five years or even more but it faces difficulty when the property is vacant. It becomes nearly impossible find a tenant. Moreover, the investor has to bear the costs associated with vacant properties. So there is the double burden situation for the investor if his property is vacant. In such cases, investors should start finding tenants as soon as possible.
Change in the supply of commercial properties creates a vulnerable situation for the existing properties. A newly setup commercial property creates a threat to existing tenancies as tenants may look to upgrade or switch their properties from old to new ones. New commercial properties change the supply and create setbacks for old properties. A large change in supply can also reduce potential yields.
There is a strong connection between living and infrastructure. Tenants would always like to make the best conditions for themselves. If there is an infrastructural change in a commercial property, then it would obviously attract tenants. As a result, tenants would move from old commercials to newly developed ones leaving all the old commercials vacant.
The lease period of the property is directly related to the value of commercial properties. When the lease is about to expire or if the property becomes vacant, the value of the property would be expected to fall. Changes in commercial property rates are indirectly related to residential properties as residential ownerships face comparatively less dramatic situations over a longer period of time.
Even though investment in commercial property involves certain types of risks but it is also a reason of success for many of the world’s most renowned real estate investors. People from neighboring countries and from all parts of the world are moving to Perth for a healthy investment in commercial real estates. Many of them are interested in building massive properties and generating excessive cash flow.
It hardly matters whether the buyer intends to invest in office layout, retail outlet structure or an industrial complex. What particularly matters is the real advantages commercial property offers:
Perth is considered to be an excellent place for commercial investments. Places in and around Perth are gaining substantial importance in terms of property investments and for other businesses. Mandurah, a city located 65 kilometers south of Perth has become an ever developing and vibrant place and has relished a huge volume of household and commercial advancement in the last 10 years. Another is Shore haven, which is located 42 kilometers north-west of Perth and is known to deliver the right opportunity to put money into Perth’s latest neighborhood.
A potential investor should carefully judge the pros and cons of investing in Perth. The economy offer suitable advantages but also involves various risks. So, it becomes necessary for the investor to investigate the property and consider the significant factors such as risks, types of commercial properties and types of leases before investing in commercial properties.
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