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Thinking about buying in to commercial property?

A growing number of everyday Australians are recognising the potential of investing in the commercial property sector and in particular we are witnessing a flood of mum and dad investors utilising self-managed superannuation funds to invest in small commercial properties.

As the year closes out we want to give those investors, who are considering that leap into this sector, a bit of a framework to consider going into the New Year;

1. What are your financial goals and your appetite for risk?

Making the wrong property choice or put simply not choosing one that does not meet your financial goals and appetite for risk, is a common pitfall for novice commercial property investors.

Three commonly cited reasons for buying a commercial property are capital growth, income (rental return) and a strategic purchase i.e. it is being bought for owner occupation, being bought for site expansion or for future development?

Whilst commercial property investment can generally offer greater returns than residential property it can and generally is more complex and risky. Having a clear understanding of what your financial goal is and more importantly an understanding of your appetite for risk will help minimise the potential for a costly mistake.

2. Is it largely tenant driven or put simply, is it what the tenant wants?

A commercial property should satisfy all of the key requirements of the intended tenant type, which may include onsite parking and/or access to public transport. Location, access and zoning are important factors that will impact the long-term ability to attract tenants and the overall performance of the asset.

Another common error is failing to analyse the attributes of competitive commercial properties in a chosen location and how these factors inhibit or improve asset performance, and importantly, its rent-ability.

3. Getting the location right.

The value and rate of return of a commercial property is largely determined by supply and demand, and given that location drives demand, location should be at the forefront of factors motivating a purchase.

While a well-located property may provide a less attractive yield, it will often have greater potential for future capital growth. Conversely, if you’re buying for rental return then a higher yield may be a more important factor in your purchase strategy.

Analysing the attributes of a competitive commercial property in a chosen location and how those factors impact either negatively or positively on the assets performance will help minimise the potential for a costly mistake.

4. Do your due diligence!

This arguably should be put at the top of any list in terms of risk management.  We covered this in general terms in a previous article (Reduce your Risk) and won’t dwell too much on it here but it is just critically important that you get this part right to avoid a costly mistake.

5. Is it a set of numbers that you need to make some sense of?

There should be very little emotion attached to a financial decision and whilst a commercial property may be located in a sexy position with a really attractive aesthetic look to it, if the numbers don’t add up, why are you doing it?

JLL’s Buyers Advocacy specialise in the search, negotiation and acquisition of property on behalf of a buyer. We represent the buyer only, not the seller, and would be happy to walk through that framework with you.

We take this opportunity to wish you and your loved ones all the best for the forthcoming holiday season.

Eli Cowley
Buyers Advocate - NSW
+61 431 553 551

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