Commercial property

A commercial property is a real estate property that is used for business activities. There are many categories of commercial properties such as industrial properties, vacant land, offices, shopping centres and even farms. Commercial property is also known as commercial real estate, income or investment property.

All buildings or land intended to generate a profit through capital gain or rental income are referred to as commercial property or commercial facility. Such property is approved and designed for wholesale or retail trade, restaurant, clinics, hotels or warehouses, but not for residential purposes.

Commercial Property or Commercial Real Estate?

Commercial property and commercial real estate are used interchangeably to refer to property leased out to be used as a workspace rather than a living space, i.e. used solely for business purposes. It is one of three major forms of real estate, with the other two being industrial and residential. As evident from the name, commercial real estate or commercial property is used in commerce, industrial real estate for production and manufacture of goods and residential real estate for living purposes.

Commercial property broadly includes office space, strip malls, convenience stores, restaurants, hotels and retailers of all kinds.

What Are the Benefits of Commercial Property?

Commercial real estate features attractive leasing rates. Compared to industrial buildings, they have a higher rent rate but higher overhead costs as well. In locations where availability of land or the existing law hinders or strictly regulates the amount of new constructions, the returns on commercial real estate can be very impressive, providing a significant monthly cash flow.

Tenants in commercial property tend to stay longer, which means that the owner can benefit from comparably longer lease contracts. Therefore considerable stability of cash flow is typically a given with commercial property when the building is occupied by long-term tenants.

What Are the Downsides to Commercial Property?

Most people interested in investing in commercial real estate are mainly deterred by incessant rules and regulations. Commercial property comes with layers of legal procedures concerning taxes, purchase, maintenance duties which are constantly changing according to factors like the industry, size of property, state, zoning and so on.

With commercial property, there is the high risk that comes with tenant turnover. Each tenant may be involved in specialised business needing costly refurbishments to the property to fit them. A lot of funds would then have to be poured in by the building owner to make the space able to accommodate the tenant’s trade. Even in cases where a commercial property has low vacancy times, high tenant turnover will still lead to loss of money to renovations for tenants.

Direct and Indirect Investment in Commercial Property

Direct investment in commercial property is a straightforward process generally. Big commercial real estate firms and prominent websites for real estate property carry a range of listings. Investors can go through a private partnership or directly purchase a small retail space or storage centre. Another option for direct investment in commercial property is real estate limited partnership. However, they usually require a significant investment.

For certain investors, indirect investment is a more practical option, because of the amount of attention required to successfully manage such properties and the large investment it would take to purchase a single property. Indirect investment in commercial property can help investors avoid the many headaches that befall management companies and or landlords.

What Important Factors Should Be Considered Before Investing In Commercial Property

Location of the commercial property and existing condition are two of the most important factors which should be taken into consideration. Experienced commercial property investors know that location plays an important role in determining the future success or failure of the purchase. Majority or corporate owners and renters of commercial property prefer to be located within short distance of their clients, suppliers, vendors and employees. A close location to these players will serve to lower transport costs and optimise business exposure.

Potential commercial property investors need to take the time to assess in detail the necessary repairs required to be carried out on a commercial property before it can be rented out. The cost of repairs and the length of time it would take to carry them out should also be considered.

Generally in real estate terms, time is money. If for some reason, a property cannot be ready for quick use, going ahead to invest in it could turn out to be a costly mistake in the end. More information about investing in commercial property can be obtained easily from an experienced commercial real estate agent.

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Published on 16th June 2017

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