Tips On Investing In Commercial Properties

You’re thinking of buying a commercial property as a property investment but are overwhelmed by all the many options. Just as with residential there are many factors to consider. So here are a few starting tips.  

Tip 1 – Research the Local Area

The commercial market, just like the residential market can go through peaks and troughs. So investigate how well the economy has been going in the area that you’re looking to purchase in. There are simple, obvious signs. For instance, a street full of vacant shops with ‘for lease’ signs on them isn’t very encouraging to buy into. Beyond that, it’s good to check out the local demographics: how many users and consumers are in the area. The local chamber of commerce should give you a reasonable idea about the growth of businesses and the strength of the local economy.

But also research the local infrastructure and any plans for development. So, are there council plans to build a freeway or a new rail station or improve local transport links? These are factors that will dramatically push up the value of any property investment where it’s retail, industrial or just office space. Also investigate any possible negative developments that may be planned. For example if your planned investment is a retail space this could be harmed if a major shopping centre is about to open across the road.

Tip 2 – Investigate the Overheads

Commercial properties can sometimes have higher overheads than their residential counterparts. Make sure you’re aware exactly of what all the maintenance costs will be. For instance, things like repair of lifts or carpets or air conditioning or heating. You’ll have a lot more users in the property and so therefore expect there to be more running repairs. A building report or similar tracked over the last five to ten years should give you a good idea of what to expect.  

Tip 3 – Research the Tenant

In many ways this is the most important factor in any commercial property investment. You really need to investigate just how stable and financially secure the commercial tenant is. Some commercial tenants are immediately more safe than others (for instance, a government agency is hardly likely to default on the lease) whereas a new, untested business (for example, a new media company less than a year old) could be considered high risk as a tenant. So make sure you’re absolutely on top of the tenant’s financials. A tenant who wants a longer lease is also far more desirable. But you also need to consider if the tenant is likely to renew the lease at the end of the period. If they are a growing business will they want to move somewhere larger in five years time?  

Tip 4 – Research the Market

This comes down to investigating the area that you’re biying into. Commercial real estate is usually divided into three types: industrial, retail and office. So, if you’re considering buying a warehouse space to lease out then its worth researching the market that it will be used for. For instance, if the space is currently used to produce paper you should investigate to see how viable that business will be in the long term. Similalrly, if it’s a retail space – for example, a shoe store – research just how well the local market is doing. Remember you’re not buying an investment property, you’re also investing in a business so you need to be aware of all the latest business trends.