Commercial Property Investment

Commercial property investment may seem daunting, but it can be a very profitable experience with the right information. This post will give you an overview of what commercial property investment is and some tips to get started.

If you're considering investing in commercial property, you're on the right track! Commercial property can be a great investment opportunity, but it's important to know what to look for before purchasing. This blog post will discuss the basics of commercial property investment and outline some of the key factors you need to consider.

Commercial property investment can be a great way to generate additional income and build long-term wealth. However, there are a few things you need to know before you get started. This blog post will outline the basics of commercial property investment and discuss some of the key factors to consider when making your decision.

It is important to understand the basics of commercial property investment before diving in. This post will dive into the basics of commercial property investment and discuss some things to consider before making your first purchase. By understanding the risks and rewards associated with commercial real estate, you can decide whether or not this type of investment is right for you. 

By owning commercial property, you can create a passive income stream that can provide you with a steady income for years to come. However, there are some things you need to know before you invest in commercial property. 

In this blog post, we will discuss the basics of commercial property investment so that you can decide if it is the right path for you. We will also discuss the pros and cons of investing in commercial property so that you can make an informed decision about your investment strategy.

Let's get started!

What Is Commercial Property Investment?

Direct funds and listed real estate investment trusts (REITs) frequently offer investors access to a diversified portfolio of high-quality commercial properties to invest in. You also have the option of investing as an individual by means of a self-managed super fund (SMSF) or other entities, such as businesses or trusts.

The following are common types of commercial properties:

• Office: Office real estate can range from buildings with one or two stories to the tallest skyscrapers in the Central Business District. Tenants could be organisations from the public sector or the private sector.

• Warehouses, manufacturing plants, and distribution centres are all included under the umbrella term "industrial," which describes these types of facilities. Because of the proliferation of online shopping websites, distribution centres are becoming increasingly common, which is leading to an increase in the demand for storage and shipping space.

• Properties in the retail sector are some of the most recognisable examples of commercial real estate. Brick-and-mortar businesses, shopping centres, and retail centres like Bunnings are all included in this category.

• Infrastructure for social interaction: A significant portion of our social infrastructure is held in private hands, which presents chances for financial investments. There are several examples, two of which are early learning centres and healthcare assets.

Important Commercial Property Jargon

When contemplating an investment in commercial real estate, it is vital to have a solid understanding of the following commercial property words before moving on. Understanding these phrases will be of great assistance.

• WALE (weighted average lease expiry): When referring to a rental property that has two or more tenants, the term "WALE" refers to the average number of months left on each lease. If the WALE is high, it indicates that tenants will, on average, remain in the building for some time, whereas if it is low, it indicates the reverse, which is to be expected.

It is possible for a tenant's income or the quantity of floor space they occupy to serve as the basis for the "weight" component of a WALE computation. Therefore, in a shopping centre that only has one large supermarket and ten smaller shops, the supermarket's lease will have a greater impact on the WALE than any of the individual business leases because the supermarket is significantly larger and pays a higher rent.

• Occupancy: The term "occupancy" refers to both the presence of tenants in a building as well as the percentage of the building that is occupied by such renters. It is determined by comparing the amount of floor space that is occupied to the total amount of space available in the building. Occupancy rates at high levels are extremely important to the performance of commercial properties.

• Capitalisation rate: The capitalisation rate, sometimes referred to as the cap rate, is a computation that compares the revenue generated from a property with the value of the property. Another name for the capitalisation rate is the cap rate.

• Tax-deferred: The possibility of paying taxes in a year other than the one in which income is distributed is referred to as a "tax-deferred scenario" or "tax-deferred scheme." If you see something described as "tax deferred" or as a "tax-deferred scenario/scheme," this means that the payment of taxes could be postponed.

• Direct property fund: A managed investment plan known as a direct property fund is an investment vehicle that pools the capital contributed by numerous participants for the purpose of buying real estate assets. The actual investment is decided by the fund manager, but ownership is distributed among investors in proportion to the amount they have contributed to the fund.

• Listed property fund: A commercial property or portfolio of properties that is publicly traded on the Australian share market is referred to as a listed property fund (ASX). Real estate investment trusts is another name for them in the Australian market (A-REITs). A-REIT investments, just like direct fund investments, are made by a fund management using money collected from investors and pooled together.

Benefits Of Commercial Property Investment

• Low level of volatility: When compared to other investment options, such as equities, the commercial property asset class is seen as having a lower level of volatility. It is possible for it to be a reliable, long-term component of an investment portfolio that is well-balanced.

• Returns: Investing in commercial real estate can result in a steady income because of the long-term stability it offers over the course of many years. The majority of the time, investors receive their share of the income either monthly or quarterly. Having said that, performance varies from fund to fund, and it is not possible to reliably predict future success based on previous performance.

• Income that is not subject to immediate taxation is one of the potential benefits that investors in commercial property funds can receive. A portion of an individual's income may be subject to taxation in a year other than the one in which it was dispersed if they have tax deferred income.

• Property acquisitions are handled by knowledgeable professionals: Managed funds and A-REITs, for the most part, reap the benefits of having experienced professionals handle their property acquisitions.

It is usual for fund managers and their transaction teams to have broad networks within the market to find new acquisitions, as well as detailed processes to assess if a property should be purchased, developed, or left alone.

Risks Of Commercial Property Investment

An investment in commercial property comes with a number of dangers, just like any other type of investment. The following is a list of some of the most important dangers that you need to think about.

However, the risks that are listed below are not an exhaustive list. Before determining whether or not to invest in any fund, you should read the Product Disclosure Statement for the relevant fund in its entirety. Additionally, if you have any questions or concerns, you should consider visiting your financial adviser, stockbroker, or other professional advisers.

• Commercial property is considered an illiquid asset; hence, investors should consider investment timelines of at least five years when purchasing commercial property.

• Value shifts in real estate: Both residential and commercial assets experience shifts in worth over the course of time. A property asset's continued value can be impacted by a variety of factors, including lease lengths, cap rates, supply and demand, and more.

• Alterations in the law: Alterations in the law enacted by the government have the potential to have knock-on impacts on the performance of certain commercial assets. By reading the product disclosure statement of the managed property fund in question, in particular, you will gain more information regarding the characteristics and dangers associated with the fund.

Investing In Commercial Property Vs. Residential Property

One of the most essential aspects to keep in mind when deciding whether to put money into residential or commercial real estate is the fact that, despite the fact that the commercial and residential real estate markets may share some similarities, the investor and occupier profiles in each market are distinct. The following is a list of features that should be kept in mind.

1. Value

In general, the capital price of residential property is significantly lower than that of the other classes of commercial real estate. However, the acquisition and upkeep costs of a commercial office, industrial, or retail asset are often higher than those of a residential property.

As a result of this, direct investments in commercial real estate are carried out by a smaller number of investors who have the required knowledge and financial capacity to purchase assets worth multiple millions of dollars, as well as the operational capacity to carry out the day-to-day management of these properties.

2. Lease terms

There is a significant disparity in the lease patterns of residential and commercial properties. Leases for commercial property are normally for lengthier terms, ranging anywhere from three to twenty years. In addition, these commercial leases typically include either predetermined yearly rent increases or rent increases that are tied directly to inflation on an annual basis.

3. Tenants

The tenants of commercial property leases are often of high quality, which results in a relatively low risk of default. Tenants include well-respected corporations and government entities from the state and the commonwealth are included in this category. The best managers do in-depth tenant analyses and focus their recruitment efforts on excellent occupants throughout the business cycle.

Investing in Retail Property

When considering an investment in the retail industry, it is essential to keep in mind the ways in which the proliferation of online shopping is transforming the way that people in Australia shop.

In the same vein, it is essential to have an understanding of the manner in which the retailing giants in Australia have now acquired control of the majority of the retail market.

Because of their expanded purchasing power, they are now in a position to keep their doors open for longer hours, which has put a significant amount of strain on the locally owned business.

Alterations have also been made to the appearance of retailing in Australia.

In the past, the majority of prosperous retail companies had a presence in the shopping areas that were dedicated to retail. At this time, they are primarily located in the huge shopping centres that are controlled by listed trusts, such as Westfield. These shopping centres have evolved into entertainment meccas for families.

As a result of the relocation of the major stores to these shopping centres, the strip shopping centres and corner shops have suffered.

These enormous shopping complexes have recently become even larger, and as a result, many shoppers appear to be returning to the strip shopping centre because it is easier to get parking and there is less rush and bustle there. They also feel a greater sense of connection with the local merchants.

There has also been a shift towards the use of "bulky goods centres," which are big, warehouse-style shopping centres that house stores such as Harvey Norman and other retailers who sell electrical or furniture products.

These centres have raised the base costs that must be met in order to entice a huge significant player to become a tenant.

Therefore, the only option left for the average investor is to purchase a storefront in a neighbourhood or strip retail centre that already has a small business occupying it as a tenant.

According to the data, however, 80 percent of new small enterprises fail during their first five years in operation.

This indicates that retail tenancies are potentially riskier unless you have the financial means to acquire the larger type of buildings required by the major retailing groups.

1. Key operator

When developers are planning a shopping centre, one of the first potential tenants they talk to is a high-volume selling food chain like Coles or Woolworths. This ensures that the shopping centre will be successful.

Also entering this group are a number of less significant competitors who are well-known for having a pricing policy that attracts customers.

The presence of a key tenant in a shopping centre is desirable for developers because it makes it more likely that additional merchants will want to lease space there as a result of the foot traffic that will be generated by the presence of the key tenant.

In a similar manner, other retailers will be encouraged to move near them in strip shopping centres if a major and successful retailer is attracting customers in high volumes. This is because the retailer will be seen as a magnet for customers.

It is quite improbable that customers will be drawn to the shopping centre in the event that there are no major retailers there.

Therefore, if you are interested in purchasing a retail investment, you should look for one that is located in close proximity to a key retailer. Even though you may not fall into the category of people who will be able to purchase a property that would house one of these key retailers, it is essential to locate a retail investment in close proximity to such a retailer.

You should now be able to find a tenant for your property at any time thanks to this.

2. Lease conditions

There are distinct differences between the lease periods for retail properties and those of other types of assets.

There are typically four different ways to enter into a rental agreement:

• A predetermined monthly rent for, say, a period of three years.

• A fixed rent with CPI increases adjusted yearly for, say, 3-5 years and with a rent review to the market rate at a specific point throughout the lease or at the expiration of the lease if an option is exercised

Because it appears to be equitable to both parties involved, this is the most popular form of the leasing agreement. In addition to this, it provides the merchant with tenure security and the owner with a decent degree of tenancy security.

• A guaranteed minimum set rental amount in addition to a percentage of the retailer's total sales. This kind of leasing arrangement is rather typical for grocery stores.

• A simple percentage of total sales or revenue.

The latter two have a pretty wide application in the food retailing industry, particularly for supermarkets, and this is how the large shopping complexes tend to organise the leases for their tenants' spaces.

However, there are certain clear factors that work against them.

The more difficult the retailer's job is, the higher the price he has to pay. Setting a certain percentage is not only challenging, but it also requires you to have a solid grasp of the operations carried out by the retailer.

Existing strip shopping centres are the most promising retail investment opportunities for investors with smaller capital.

There is also the possibility of finding possibilities to engage in modest property development in strip or neighbourhood commerce centres. You might, for instance, decide to acquire an older business, then either remodel it or add offices on top of it.

Because they face two streets and have increased foot traffic, retail establishments in corner locations are excellent investments.

Investing in Industrial Property

The majority of a property classified as industrial will comprise warehouses and factories. As a result of the shift in the focus of our industrial base from manufacturing to more storage and distribution, many of these buildings now house significant quantities of office space. These days, industrial buildings are home to a diverse spectrum of activities, from research and development, which necessitates a sizable office space, to empty warehouse space.

In recent years, industrial buildings have been sprouting up in areas designated as industrial parks. These parks typically feature a sizeable garden component and increased tenant amenities. Tenants, on the other hand, would rather reside in locations that are tidier, more modern, and better designed and put out.

These types of buildings frequently feature expansive floor plans that are devoid of column support and offer office space in the range of 15–20 percent of the total building area. The scale of industrial buildings can range greatly, from single-hectare workshops to huge distribution hubs spanning multiple hectares.

The smaller factories make it possible for the common investor to enter the manufacturing market at a price that is quite affordable.

Buildings used for manufacturing can be divided into the following three categories:

• manufacturing
• research and development
• warehousing or distribution.

There are a lot of new buildings that are constructed with a specific end-user in mind, but if you are going to develop an office complex on the speculative market, you should aim to keep the building design flexible so that potential tenants can have as much office space as they need.

There are already a lot of smaller businesses that need between 25 and 50 percent of the facility to have office space. In addition, certain geographic areas are particularly well-suited to the development of particular kinds of industrial space. I am referring to the fact that certain regions have garnered a lot of attention due to the presence of high-tech research centres or computing facilities.

Others become warehouses and distribution centres because they are located in close proximity to major highways or freeways.

Industrial buildings constructed in the past and those constructed today are very different from one another. This is because the work done in the Australian industry has shifted away from manufacturing and towards importing and warehousing.

• In general, buildings are larger, and they typically have higher ceilings to accommodate greater storage capacity.

• Buildings now come equipped with more advanced technology, which makes it possible to have automated operations or a larger office component.

• To support taller pallet racking and heavier-duty forklifts, concrete floors that are intended to be strong and more durable are installed.

• Roller shutter doors are more common in warehouses, which means that loading and unloading can take place concurrently.

• The size of truck manoeuvring spaces is growing so that they can handle larger vehicles that are transporting containers.

Larger companies operating on a national and global scale typically search for a list of needs similar to this one.

This indicates that the majority of older warehouse buildings would not meet their requirements if they were used. Smaller enterprises, on the other hand, do not need all of these facilities and would rather not pay for the most recent state-of-the-art structure.

A flexible building that is easily capable of being altered to meet tenants' expansion or varied office space arrangements would produce a superior return on investment over the long term.

1. What attributes do a good industrial investment have?

When looking for an ideal industrial investment, you should consider the following factors:

• Because so many industrial properties need their employees to have access to major highways and population centres, a suitable location is essential.

• Parking spaces on site that are sufficient for both employees and guests.

• Accessibility on a sufficient scale for huge trucks, in particular those carrying containers. Because of this, the threshold of the storage facility must be raised, and the gradient of the driveway cannot be too steep.

• The offices have comfortable amenities for the personnel, such as toilets, a kitchen, and air conditioning, among other things.

• Capability to accommodate both offices and showrooms within the same building.

• Large roof heights because the majority of tenants employ contemporary racking, which stores items at a higher level.

2. Tenant selection

When it comes to investments of any kind, choosing the right tenant is essential. Although you cannot be as stringent with your housekeeping requirements as you can be in residential or office leases, as a landlord, you should set the standards regarding overall cleanliness outside the building as well as the disposal of waste.

When there is a significant portion of office space included, the rents for this property are higher than when there is a greater emphasis on open warehouse space. In most cases, leases are for a period of three years and include annual CPI adjustments.

The construction of industrial buildings is not particularly difficult, does not take very long, and requires significantly less time than the construction of office structures.

Rents and occupancy levels will often undergo modest and steady increases during times of economic expansion, and they will typically experience slight falls during times of economic contraction. However, in comparison to other commercial property markets, the industrial market tends to be more stable overall.

How To Make Your Commercial Investment More Valuable

• When you purchase an asset at a price that is lower than its current market value, the value of your investment will immediately increase since the asset will be worth more than what you paid for it.

• Some tenants who inhabit industrial properties also construct mezzanines in order to expand their available space or establish an office for their company. Many are constructed without the authority of the local council, which means that they legally cannot be included in the total square footage of the structure.

You should do some research on this topic because there is a possibility that you may achieve a cheaper sale price and retroactively get council approval for the add-on, which would result in an instant rise in the property's worth.

• You can add significant value to the business investment property you own by increasing the property's total square footage or by subdividing existing space into multiple units.

• Include highly coveted assets in the design, such as parking or storage space. Both are very desirable to prospective renters and have the potential to result in a longer lease term and increased rental returns.

• Rent hikes can have a significant impact on your investment portfolio, contributing to both increased cash flow and increased capital growth.

• Increasing the duration of your lease will improve the safety of the property, which will result in an increase in the rate at which investors value your real estate investment.

Ways To Maximise Commercial Returns

1. Develop and keep up your relationships.

The fact that it is a relationship-based industry is one of the most significant aspects that set commercial real estate apart from residential real estate. If you are aware of this information, you will have an advantage over other buyers and be in a better position to negotiate favourable terms with the vendor. To be successful in commercial real estate, you need to cultivate relationships with brokers so that they will give you their best off-market deals.

2. Purchase in the appropriate sector at the proper moment

At any one point in time, many asset classes and industries may perform better or worse than expected. For instance, the performance of many office real estate markets is lagging behind that of the industrial and commercial real estate markets.

3. Buy in reputable locations

Don't just go after the highest possible yield! For instance, a net yield of ten percent in a relatively unimportant regional town might not develop at the same rate as a net yield of six percent in a major city.

4. Purchase an asset that can be easily re-let

It is possible that this is not the right solution for you if you do not feel confidence in your ability to find a replacement tenant in the event of an emergency.

5. Conduct research

It is the responsibility of both the tenant and the investor to guarantee that there is a consistent flow of cash from the property. The purpose of conducting due diligence is to verify that the value of the asset is commensurate with the amount that you intend to pay for it.

How Much Cash Is Necessary To Invest In Commercial Property?

You will need approximately $175,000 to get started in the commercial real estate market. That brings the total to a thirty percent down payment, in addition to any stamp duties, legal expenses, and the costs of your building and pest inspections. This estimate is derived from a home that costs $500,000 and has 100 square feet of living space (perhaps a small physiotherapist, office, or warehouse located in a capital city with high population growth).

The quality of these properties is high, and although they have fewer tenants, they still have the potential to provide lease terms of three years, making them an excellent investment. In terms of the various financing alternatives, several banks are now providing leases for 80% of the purchase price.

We do recommend to our customers that a minimum investment of $200,000 is necessary because this allows you to purchase a commercial investment of a little higher quality. Nevertheless, after you do the math, you'll realise that you can enter the market and begin making returns on a relatively tiny amount of capital.

Commercial property investment may seem like a daunting task, but it can be a very profitable experience with the right information. This post will give you an overview of what commercial property investment is and some tips to get started.

If you're considering investing in commercial property, you're on the right track! Commercial property can be a great investment opportunity, but it's important to know what to look for before purchasing. This blog post will discuss the basics of commercial property investment and outline some of the key factors you need to consider.

Commercial property investment can be a great way to generate additional income and build long-term wealth. However, there are a few things you need to know before you get started. This blog post will outline the basics of commercial property investment and discuss some of the key factors to consider when making your decision.

It is important to understand the basics of commercial property investment before diving in. This post will dive into the basics of commercial property investment and discuss some things to consider before making your first purchase. By understanding the risks and rewards associated with commercial real estate, you can decide whether or not this type of investment is right for you. 

By owning commercial property, you can create a passive income stream that can provide you with a steady income for years to come. However, there are some things you need to know before you invest in commercial property. 

In this blog post, we will discuss the basics of commercial property investment so that you can decide if it is the right path for you. We will also discuss the pros and cons of investing in commercial property so that you can make an informed decision about your investment strategy.

Let's get started!

What Is Commercial Property Investment?

Direct funds and listed real estate investment trusts (REITs) frequently offer investors access to a diversified portfolio of high-quality commercial properties to invest in. You also have the option of investing as an individual by means of a self-managed super fund (SMSF) or other entities, such as businesses or trusts.

The following are common types of commercial properties:

• Office: Office real estate can range from buildings with one or two stories to the tallest skyscrapers in the Central Business District. Tenants could be organisations from the public sector or the private sector.

• Warehouses, manufacturing plants, and distribution centres are all included under the umbrella term "industrial," which describes these types of facilities. Because of the proliferation of online shopping websites, distribution centres are becoming increasingly common, which is leading to an increase in the demand for storage and shipping space.

• Properties in the retail sector are some of the most recognisable examples of commercial real estate. Brick-and-mortar businesses, shopping centres, and retail centres like Bunnings are all included in this category.

• Infrastructure for social interaction: A significant portion of our social infrastructure is held in private hands, which presents chances for financial investments. There are several examples, two of which are early learning centres and healthcare assets.

Important Commercial Property Jargon

When contemplating an investment in commercial real estate, it is vital to have a solid understanding of the following commercial property words before moving on. Understanding these phrases will be of great assistance.

• WALE (weighted average lease expiry): When referring to a rental property that has two or more tenants, the term "WALE" refers to the average number of months left on each lease. If the WALE is high, it indicates that tenants will, on average, remain in the building for some time, whereas if it is low, it indicates the reverse, which is to be expected.

It is possible for a tenant's income or the quantity of floor space they occupy to serve as the basis for the "weight" component of a WALE computation. Therefore, in a shopping centre that only has one large supermarket and ten smaller shops, the supermarket's lease will have a greater impact on the WALE than any of the individual business leases because the supermarket is significantly larger and pays a higher rent.

• Occupancy: The term "occupancy" refers to both the presence of tenants in a building as well as the percentage of the building that is occupied by such renters. It is determined by comparing the amount of floor space that is occupied to the total amount of space available in the building. Occupancy rates at high levels are extremely important to the performance of commercial properties.

• Capitalisation rate: The capitalisation rate, sometimes referred to as the cap rate, is a computation that compares the revenue generated from a property with the value of the property. Another name for the capitalisation rate is the cap rate.

• Tax-deferred: The possibility of paying taxes in a year other than the one in which income is distributed is referred to as a "tax-deferred scenario" or "tax-deferred scheme." If you see something described as "tax deferred" or as a "tax-deferred scenario/scheme," this means that the payment of taxes could be postponed.

• Direct property fund: A managed investment plan known as a direct property fund is an investment vehicle that pools the capital contributed by numerous participants for the purpose of buying real estate assets. The actual investment is decided by the fund manager, but ownership is distributed among investors in proportion to the amount they have contributed to the fund.

• Listed property fund: A commercial property or portfolio of properties that is publicly traded on the Australian share market is referred to as a listed property fund (ASX). Real estate investment trusts is another name for them in the Australian market (A-REITs). A-REIT investments, just like direct fund investments, are made by a fund management using money collected from investors and pooled together.

Benefits Of Commercial Property Investment

• Low level of volatility: When compared to other investment options, such as equities, the commercial property asset class is seen as having a lower level of volatility. It is possible for it to be a reliable, long-term component of an investment portfolio that is well-balanced.

• Returns: Investing in commercial real estate can result in a steady income because of the long-term stability it offers over the course of many years. The majority of the time, investors receive their share of the income either monthly or quarterly. Having said that, performance varies from fund to fund, and it is not possible to reliably predict future success based on previous performance.

• Income that is not subject to immediate taxation is one of the potential benefits that investors in commercial property funds can receive. A portion of an individual's income may be subject to taxation in a year other than the one in which it was dispersed if they have tax deferred income.

• Property acquisitions are handled by knowledgeable professionals: Managed funds and A-REITs, for the most part, reap the benefits of having experienced professionals handle their property acquisitions.

It is usual for fund managers and their transaction teams to have broad networks within the market to find new acquisitions, as well as detailed processes to assess if a property should be purchased, developed, or left alone.

Risks Of Commercial Property Investment

An investment in commercial property comes with a number of dangers, just like any other type of investment. The following is a list of some of the most important dangers that you need to think about.

However, the risks that are listed below are not an exhaustive list. Before determining whether or not to invest in any fund, you should read the Product Disclosure Statement for the relevant fund in its entirety. Additionally, if you have any questions or concerns, you should consider visiting your financial adviser, stockbroker, or other professional advisers.

• Commercial property is considered an illiquid asset; hence, investors should consider investment timelines of at least five years when purchasing commercial property.

• Value shifts in real estate: Both residential and commercial assets experience shifts in worth over the course of time. A property asset's continued value can be impacted by a variety of factors, including lease lengths, cap rates, supply and demand, and more.

• Alterations in the law: Alterations in the law enacted by the government have the potential to have knock-on impacts on the performance of certain commercial assets. By reading the product disclosure statement of the managed property fund in question, in particular, you will gain more information regarding the characteristics and dangers associated with the fund.

Investing In Commercial Property Vs. Residential Property

One of the most essential aspects to keep in mind when deciding whether to put money into residential or commercial real estate is the fact that, despite the fact that the commercial and residential real estate markets may share some similarities, the investor and occupier profiles in each market are distinct. The following is a list of features that should be kept in mind.

1. Value

In general, the capital price of residential property is significantly lower than that of the other classes of commercial real estate. However, the acquisition and upkeep costs of a commercial office, industrial, or retail asset are often higher than those of a residential property.

As a result of this, direct investments in commercial real estate are carried out by a smaller number of investors who have the required knowledge and financial capacity to purchase assets worth multiple millions of dollars, as well as the operational capacity to carry out the day-to-day management of these properties.

2. Lease terms

There is a significant disparity in the lease patterns of residential and commercial properties. Leases for commercial property are normally for lengthier terms, ranging anywhere from three to twenty years. In addition, these commercial leases typically include either predetermined yearly rent increases or rent increases that are tied directly to inflation on an annual basis.

3. Tenants

The tenants of commercial property leases are often of high quality, which results in a relatively low risk of default. Tenants include well-respected corporations and government entities from the state and the commonwealth are included in this category. The best managers do in-depth tenant analyses and focus their recruitment efforts on excellent occupants throughout the business cycle.

Investing in Retail Property

When considering an investment in the retail industry, it is essential to keep in mind the ways in which the proliferation of online shopping is transforming the way that people in Australia shop.

In the same vein, it is essential to have an understanding of the manner in which the retailing giants in Australia have now acquired control of the majority of the retail market.

Because of their expanded purchasing power, they are now in a position to keep their doors open for longer hours, which has put a significant amount of strain on the locally owned business.

Alterations have also been made to the appearance of retailing in Australia.

In the past, the majority of prosperous retail companies had a presence in the shopping areas that were dedicated to retail. At this time, they are primarily located in the huge shopping centres that are controlled by listed trusts, such as Westfield. These shopping centres have evolved into entertainment meccas for families.

As a result of the relocation of the major stores to these shopping centres, the strip shopping centres and corner shops have suffered.

These enormous shopping complexes have recently become even larger, and as a result, many shoppers appear to be returning to the strip shopping centre because it is easier to get parking and there is less rush and bustle there. They also feel a greater sense of connection with the local merchants.

There has also been a shift towards the use of "bulky goods centres," which are big, warehouse-style shopping centres that house stores such as Harvey Norman and other retailers who sell electrical or furniture products.

These centres have raised the base costs that must be met in order to entice a huge significant player to become a tenant.

Therefore, the only option left for the average investor is to purchase a storefront in a neighbourhood or strip retail centre that already has a small business occupying it as a tenant.

According to the data, however, 80 percent of new small enterprises fail during their first five years in operation.

This indicates that retail tenancies are potentially riskier unless you have the financial means to acquire the larger type of buildings required by the major retailing groups.

1. Key operator

When developers are planning a shopping centre, one of the first potential tenants they talk to is a high-volume selling food chain like Coles or Woolworths. This ensures that the shopping centre will be successful.

Also entering this group are a number of less significant competitors who are well-known for having a pricing policy that attracts customers.

The presence of a key tenant in a shopping centre is desirable for developers because it makes it more likely that additional merchants will want to lease space there as a result of the foot traffic that will be generated by the presence of the key tenant.

In a similar manner, other retailers will be encouraged to move near them in strip shopping centres if a major and successful retailer is attracting customers in high volumes. This is because the retailer will be seen as a magnet for customers.

It is quite improbable that customers will be drawn to the shopping centre in the event that there are no major retailers there.

Therefore, if you are interested in purchasing a retail investment, you should look for one that is located in close proximity to a key retailer. Even though you may not fall into the category of people who will be able to purchase a property that would house one of these key retailers, it is essential to locate a retail investment in close proximity to such a retailer.

You should now be able to find a tenant for your property at any time thanks to this.

2. Lease conditions

There are distinct differences between the lease periods for retail properties and those of other types of assets.

There are typically four different ways to enter into a rental agreement:

• A predetermined monthly rent for, say, a period of three years.

• A fixed rent with CPI increases adjusted yearly for, say, 3-5 years and with a rent review to the market rate at a specific point throughout the lease or at the expiration of the lease if an option is exercised

Because it appears to be equitable to both parties involved, this is the most popular form of the leasing agreement. In addition to this, it provides the merchant with tenure security and the owner with a decent degree of tenancy security.

• A guaranteed minimum set rental amount in addition to a percentage of the retailer's total sales. This kind of leasing arrangement is rather typical for grocery stores.

• A simple percentage of total sales or revenue.

The latter two have a pretty wide application in the food retailing industry, particularly for supermarkets, and this is how the large shopping complexes tend to organise the leases for their tenants' spaces.

However, there are certain clear factors that work against them.

The more difficult the retailer's job is, the higher the price he has to pay. Setting a certain percentage is not only challenging, but it also requires you to have a solid grasp of the operations carried out by the retailer.

Existing strip shopping centres are the most promising retail investment opportunities for investors with smaller capital.

There is also the possibility of finding possibilities to engage in modest property development in strip or neighbourhood commerce centres. You might, for instance, decide to acquire an older business, then either remodel it or add offices on top of it.

Because they face two streets and have increased foot traffic, retail establishments in corner locations are excellent investments.

Investing in Industrial Property

The majority of a property classified as industrial will comprise warehouses and factories. As a result of the shift in the focus of our industrial base from manufacturing to more storage and distribution, many of these buildings now house significant quantities of office space. These days, industrial buildings are home to a diverse spectrum of activities, from research and development, which necessitates a sizable office space, to empty warehouse space.

In recent years, industrial buildings have been sprouting up in areas designated as industrial parks. These parks typically feature a sizeable garden component and increased tenant amenities. Tenants, on the other hand, would rather reside in locations that are tidier, more modern, and better designed and put out.

These types of buildings frequently feature expansive floor plans that are devoid of column support and offer office space in the range of 15–20 percent of the total building area. The scale of industrial buildings can range greatly, from single-hectare workshops to huge distribution hubs spanning multiple hectares.

The smaller factories make it possible for the common investor to enter the manufacturing market at a price that is quite affordable.

Buildings used for manufacturing can be divided into the following three categories:

• manufacturing
• research and development
• warehousing or distribution.

There are a lot of new buildings that are constructed with a specific end-user in mind, but if you are going to develop an office complex on the speculative market, you should aim to keep the building design flexible so that potential tenants can have as much office space as they need.

There are already a lot of smaller businesses that need between 25 and 50 percent of the facility to have office space. In addition, certain geographic areas are particularly well-suited to the development of particular kinds of industrial space. I am referring to the fact that certain regions have garnered a lot of attention due to the presence of high-tech research centres or computing facilities.

Others become warehouses and distribution centres because they are located in close proximity to major highways or freeways.

Industrial buildings constructed in the past and those constructed today are very different from one another. This is because the work done in the Australian industry has shifted away from manufacturing and towards importing and warehousing.

• In general, buildings are larger, and they typically have higher ceilings to accommodate greater storage capacity.

• Buildings now come equipped with more advanced technology, which makes it possible to have automated operations or a larger office component.

• To support taller pallet racking and heavier-duty forklifts, concrete floors that are intended to be strong and more durable are installed.

• Roller shutter doors are more common in warehouses, which means that loading and unloading can take place concurrently.

• The size of truck manoeuvring spaces is growing so that they can handle larger vehicles that are transporting containers.

Larger companies operating on a national and global scale typically search for a list of needs similar to this one.

This indicates that the majority of older warehouse buildings would not meet their requirements if they were used. Smaller enterprises, on the other hand, do not need all of these facilities and would rather not pay for the most recent state-of-the-art structure.

A flexible building that is easily capable of being altered to meet tenants' expansion or varied office space arrangements would produce a superior return on investment over the long term.

1. What attributes do a good industrial investment have?

When looking for an ideal industrial investment, you should consider the following factors:

• Because so many industrial properties need their employees to have access to major highways and population centres, a suitable location is essential.

• Parking spaces on site that are sufficient for both employees and guests.

• Accessibility on a sufficient scale for huge trucks, in particular those carrying containers. Because of this, the threshold of the storage facility must be raised, and the gradient of the driveway cannot be too steep.

• The offices have comfortable amenities for the personnel, such as toilets, a kitchen, and air conditioning, among other things.

• Capability to accommodate both offices and showrooms within the same building.

• Large roof heights because the majority of tenants employ contemporary racking, which stores items at a higher level.

2. Tenant selection

When it comes to investments of any kind, choosing the right tenant is essential. Although you cannot be as stringent with your housekeeping requirements as you can be in residential or office leases, as a landlord, you should set the standards regarding overall cleanliness outside the building as well as the disposal of waste.

When there is a significant portion of office space included, the rents for this property are higher than when there is a greater emphasis on open warehouse space. In most cases, leases are for a period of three years and include annual CPI adjustments.

The construction of industrial buildings is not particularly difficult, does not take very long, and requires significantly less time than the construction of office structures.

Rents and occupancy levels will often undergo modest and steady increases during times of economic expansion, and they will typically experience slight falls during times of economic contraction. However, in comparison to other commercial property markets, the industrial market tends to be more stable overall.

How To Make Your Commercial Investment More Valuable

• When you purchase an asset at a price that is lower than its current market value, the value of your investment will immediately increase since the asset will be worth more than what you paid for it.

• Some tenants who inhabit industrial properties also construct mezzanines in order to expand their available space or establish an office for their company. Many are constructed without the authority of the local council, which means that they legally cannot be included in the total square footage of the structure.

You should do some research on this topic because there is a possibility that you may achieve a cheaper sale price and retroactively get council approval for the add-on, which would result in an instant rise in the property's worth.

• You can add significant value to the business investment property you own by increasing the property's total square footage or by subdividing existing space into multiple units.

• Include highly coveted assets in the design, such as parking or storage space. Both are very desirable to prospective renters and have the potential to result in a longer lease term and increased rental returns.

• Rent hikes can have a significant impact on your investment portfolio, contributing to both increased cash flow and increased capital growth.

• Increasing the duration of your lease will improve the safety of the property, which will result in an increase in the rate at which investors value your real estate investment.

Ways To Maximise Commercial Returns

1. Develop and keep up your relationships.

The fact that it is a relationship-based industry is one of the most significant aspects that set commercial real estate apart from residential real estate. If you are aware of this information, you will have an advantage over other buyers and be in a better position to negotiate favourable terms with the vendor. To be successful in commercial real estate, you need to cultivate relationships with brokers so that they will give you their best off-market deals.

2. Purchase in the appropriate sector at the proper moment

At any one point in time, many asset classes and industries may perform better or worse than expected. For instance, the performance of many office real estate markets is lagging behind that of the industrial and commercial real estate markets.

3. Buy in reputable locations

Don't just go after the highest possible yield! For instance, a net yield of ten percent in a relatively unimportant regional town might not develop at the same rate as a net yield of six percent in a major city.

4. Purchase an asset that can be easily re-let

It is possible that this is not the right solution for you if you do not feel confidence in your ability to find a replacement tenant in the event of an emergency.

5. Conduct research

It is the responsibility of both the tenant and the investor to guarantee that there is a consistent flow of cash from the property. The purpose of conducting due diligence is to verify that the value of the asset is commensurate with the amount that you intend to pay for it.

How Much Cash Is Necessary To Invest In Commercial Property?

You will need approximately $175,000 to get started in the commercial real estate market. That brings the total to a thirty percent down payment, in addition to any stamp duties, legal expenses, and the costs of your building and pest inspections. This estimate is derived from a home that costs $500,000 and has 100 square feet of living space (perhaps a small physiotherapist, office, or warehouse located in a capital city with high population growth).

The quality of these properties is high, and although they have fewer tenants, they still have the potential to provide lease terms of three years, making them an excellent investment. In terms of the various financing alternatives, several banks are now providing leases for 80% of the purchase price.

We do recommend to our customers that a minimum investment of $200,000 is necessary because this allows you to purchase a commercial investment of a little higher quality. Nevertheless, after you do the math, you'll realise that you can enter the market and begin making returns on a relatively tiny amount of capital.