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Pros and Cons of Investing in Commercial Real Estate

Commercial property investment has always been the first choice of high-net-worth individuals as it comes with great rewards. The rental yield and the return on investment are much higher than what buyers retrieve from residential real estate. All three types of properties – office, retail and industrial - have their own set of risks and rewards, yet all of them are equally popular among the buyers.

The location of the property plays a vital role in determining the value of the structure. If it is positioned in a populated city with a prolific economic sector, then it becomes a highly lucrative proposition for the investors. Besides Sydney and Melbourne, Brisbane has emerged as a flourishing property market with booming commercial real estate. It has maintained a strong capital growth in 2020 and continues to surge ahead.

Thus people looking for commercial property for sale in Brisbane must understand the pros and cons of their investment before jumping the bandwagon. It is useful information for first-time buyers who are not aware of the market fluctuations and trends. So let us help you to understand the challenges and benefits of investing in commercial real estate.

The Rewards of Putting Money In Commercial Properties

Here are the key points that make buying an office, retail shop or industrial area worth every dollar.

  • Significant Income

Most wealthy and affluent investors choose commercial property over residential for investment purpose because the rental yield is much better. While a house in Brisbane may bring only 3% gross rental earnings, commercial real estate can generate up to 10% or higher income. If the building will be leased by the buyer, then investing in a commercial structure is a wise decision.

Since all the types of business premises are leased by thriving entities, it is easier to get the rental income the owner desires without any hassles. Mostly, these edifices are centrally located and get the best price for being easily accessible and at the centre of all the activity. 

  • Longer Lease Terms

The lease terms for commercial spaces is usually longer and lasts for at least three to five years with options of easy renewals of the contract. Many businesses prefer long-term deals as they want to present themselves as a reliable entity with an attractive physical presence. Thus they do not want to change the address again and again and choose longer leases. If the owner is able to get a successful brand as a tenant, then the lease term can go up to 10 to 12 years. It reduces the stress of looking for new tenants after every few years and paying the brokers and spending on the refurbishment.

  • Positive Cash Flow

With lower vacancy rates, it is not difficult to lease the property for the long-term. Since strong investment activity in Brisbane is one of the emerging trends in the commercial property market in 2020, the vacancy rate has been quite low. It means that you will enjoy a regular flow of income with very few spells of no rent. Most of the tenants are business houses which show professionalism with the payment of the rent and do not delay it at any cost. Dealing with them is also easier than families living in homes which may postpone the payments or ask for negotiations.

  • Less Maintenance

With commercial properties, the owners are not responsible for the modification of the interiors that a business might require to portray its image or display its branding. The maintenance is dependent on the tenant along with all the other outgoings, which make the deal least expensive and comfortable for the owner. Thus the owner does not have to work hard on renovations while looking for the new tenant. It saves a lot of money spent on the maintenance of residential properties.

  • Appreciation

The value of the property increases with time and gets massive returns. The best part is that the money spent by the tenants on the revamp of the interiors helps in improving the value of the property. Also, the evaluations of the property are more accurate and based on the market trends and not on the emotional association of the owner with his/her residential property.

Risks Associated With Commercial Property Investment

There are certain challenges of putting money into a commercial property that should be taken into consideration while working on a deal.

  • Infrastructure Development

If the infrastructure development in the region does not show any signs of progress and other commercial precincts become prominent, then many tenants can move to the more advantageous spot. However, this issue can be resolved by conducting thorough research of the area in Brisbane before making the purchase. If you know that the government will be spending on the development of the region, then you need not worry about the growth of the precinct.   

  • Lesser Loan Amount 

Since commercial properties are viewed as risky investments, getting funding or bank loans for the most part of the price is a tough task. However, banks and financial institutions have no qualms in offering bigger loans for residential properties. Also, you have to pay a higher sum upfront when purchasing an office, retail or industrial space which can become financially disturbing for the investor. However, with the interest rate at its lowest, it has become easier to invest in commercial property since the sector has not been affected much by the COVID-19 pandemic.

  • Affected By Economic Conditions

The commercial sector is directly impacted by the economy of the country. If there is a downturn, then many businesses can go into losses and may even have to shut shop. Thus the demand for commercial lease plummets drastically in such conditions, and it becomes difficult to find tenants. On the other hand, the demand for residential real estate still exists as people are always in need of a place to live. However, the commercial property sector in Brisbane has been booming even though the housing sector had slowed down before regaining its past pace. 

Conclusion

Buyers intending to purchase a commercial property for sale in Brisbane must be aware of the pros and cons of investing in the sector. It helps them to make an informed decision based on careful research of the market and prospects of the property.