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When should I consider commercial property?

July 11, 2022

Australians are bricks and mortar mad - but there are plenty of reasons a commercial property also makes excellent sense. 

1. You want investment diversification 

 Commercial property behaves differently from the residential market in many aspects as an asset class. However, when combined into a diversified property portfolio, these differences can also support the evolving needs of sophisticated investors as they journey along the investment yellow brick road.

2. You're seeking strong income returns 

 One of the benefits of owning commercial property is that leases usually run for much longer than residential property - in many cases, 3-5 years and longer. These more substantial leases provide more certainty of income and generally higher yields than many other asset classes.

 The latest Raine & Horne Commercial Insights report reveals that yields are currently sitting between around 4-6% (and in some cases higher) depending on the property type and location. On the other hand, CoreLogic says gross (before costs) yields on residential housing nationally are 3.2% for houses and 3.9% for apartments.

3. You own a small business

 Investing in your business premises offers the security of tenure plus a chance to control leasing costs. And today's historically low interest rates are fuelling the rise of the owner-occupier in commercial property markets.

 In truth, it is now cheaper for SMEs to own rather than lease their place of business in many areas.

4. Lower ongoing costs

 The landlord wears many ongoing costs in a residential tenancy, including repairs and maintenance. Managing these expenses can be a nuisance, lowering the landlord's net (after costs) yields.

 By contrast, it is more typical for the tenant to pay many of the property's regular expenses in the commercial market. This means more of the rent hits the landlord's pocket. Better still, the extra cash flow allows the landlord (a 'lessor' in commercial real estate) to reinvest funds to keep the shop, industrial unit, or office in good working order.

To discuss other great reasons for buying commercial real estate, contact your local Raine & Horne Commercial agent today.