The commercial real estate is an unexplored terrain for most people who only invest in residential properties and consider it to be a risky affair. Commercial is often equated to office spaces, but it encompasses a vast legion of assets such as large business districts, retail shops, hotels, restaurants, hospitals, parking areas and more such lands. Though it is a volatile market, it brings along numerous rewards including a steady flow of capital, higher rental amount, and lesser ongoing costs. So if you are a real estate investor who is looking for a viable opportunity, putting in your money in a commercial building is going to be a valuable addition to your investment portfolio. Whether you are looking for office space for personal use or wish to invest in a commercial property for sale in Australia, you need to be equipped with the right knowledge to snap a lucrative deal. The rumour mills keep buzzing about commercial properties being too expensive and out of reach for first-time investors; this is far from the truth. It is a bad deal for only those who do not understand the market and make hasty decisions based on assumptions. When it comes to spending hard-earned money, the property must be thoroughly evaluated to avoid landing in a soup.
The demand for the industrial property in Australia is at all-time high with institutional investors seeking to expand their ownership. The Australian CBD offices continue to sell like hotcakes and have led to declining vacancy rates in Sydney and Melbourne. The two metropolitan cities are on the radar of local as well as international investors as they have a considerable percentage of professionally qualified individuals with high net worth. The commercial sector is booming in these two regions, and thus there is a growing need for expansive trade centres, shopping arcades, warehouses, industrial land and more. According to recent research, investment returns are the highest levels in more than ten years in the metro office markets. The annual rental growth in the two cities has also become a talking point as it reached more than 15% per annum in March 2018. The southern part of Sydney has considerably benefitted from government’s contribution towards strengthening of infrastructure and transferring the government departments to other less expensive commercial areas. The CBD fringes will continue to grow under the favourable economic conditions and burgeoning cross-border investments coming from the foreign shores of Asia in particular.
If you are planning to enter the sector by purchasing a commercial property for sale in Sydney CBD, NSW, or any other high growth city, then you need to understand how the industry works to set a firm foot. Here is the best advice for someone getting into the commercial property sector for the first time:
1. Profitable Than Residential
For the cynical investors who are sceptical about entering the commercial space, it is imperative to understand that commercial real estate is a profitable venture. Firstly, the ROI is much higher, and secondly, there is potential for redevelopment. The lease period is much longer ranging from 3 to 10 years as compared to residential which usually lasts from 6 to 12 months. These properties are flexible and easier to be refurbished and rebranded. The overheads are very low as the tenants are responsible for water, insurance, and council fee. The prices appreciate with inflation and the lease agreements come with rent hike terms and conditions.
This is an essential as well as confusing decision for investors as it has a direct impact on the budget and the revenue. From the bustling CBDs to the suburban warehouses, you can make your pick depending on your requirement and goals. An inner city industrial property can get you a good bargain deal and can be redeveloped into something new and exciting. However, you need to be aware of the zoning laws in these areas. Many regions have laws against noise and have banned the use of chemicals. So research the area thoroughly before going forward. Also, look for a place that is well-connected to other areas and is easily accessible with similar properties in the vicinity.
3. Budget Allocation
Once you have decided to go down the commercial property lane, you need to figure out the amount you are willing to shell out. This will help you identify the ones which fall within your price bracket rather than looking all over the place. For example, if you are considering purchasing a commercial property for sale in Brisbane, Queensland, then you need to take into account the size of the property, the lease terms, infrastructure, and demand from tenants in the area. If the vacancy periods are long, then you will have to bear the costs during that period. Therefore understand the market and cash flow before stepping into a particular zone. Look for properties that have a track record of gaining significant returns.
Inquire about the structural strength of the building and check if it is in need of renovation and alterations. A dilapidated structure would add to the cost as it would need rebuilding. If it is an industrial property, you must check for chemical spills and underground storage area. Also, pay heed to the surrounding region. For example, if a freeway is coming up in the locality, then it will surely add to the value of the property. A comprehensive inspection of the premises is advantageous to avoid cropping up of maintenance issues in the future. Thus if you are planning to buy a commercial property for sale in Melbourne, Victoria, you must take out time to check the place yourself.
5. Finding A Tenant
The tenant should be a well-established corporate or a government department who are financially stable to manage the rental expenses. As an investor, you must put your money in a quality building with many vacancies and where the previous tenants are paying rent according to the market rates. This will help in finding quality tenants and increasing the rentals annually in accordance with the changes in the market trends. Improved tenant quality is also vital for attracting buyers in the future for making capital gains.
Investing in commercial property doesn’t have to be an intimidating activity. If you are armed with the right knowledge and know where to look, you will find the most profitable commercial properties for sale in Australia. The key lies in understanding the risks and market conditions before diving into the sector.