As a residential investor, you may be considering expanding your portfolio to include commercial properties. And now is certainly a fantastic time to do so, as there is a unique ‘Window of Opportunity’ available within which to buy commercial at significantly reduced prices.
Commercial property can offer hands off income to great tenants occupying on long leases. However, whilst the fundamentals of property investment remain constant, the commercial sector presents unique challenges and opportunities. Here’s my mini guide to help you navigate this transition successfully.
1. Acquiring Knowledge on Leases and the Market
The first step in commercial property investment is understanding the nuances of commercial leases and the market dynamics. Unlike residential tenancies, commercial leases can be complex, often involving longer terms, different types of lease structures, and varying tenant obligations. Educate yourself on terms like Full Repairing and Insuring (FRI) leases, break clauses, rent
reviews, and service charges. Additionally, stay informed about how commercial valuations work, as well as market trends, vacancy rates, and key economic indicators that influence commercial property values. Not only do you need to understand how the market works to make sure you make great investment decisions, but it will help you no end to prove your credibility with commercial agents if you can speak the ‘lingo’.
2. Niching Your Strategies
Once you have acquired knowledge, you can start to decide on what niche/s you will be investing in. Commercial property encompasses a wide range of sectors, including office spaces, retail units, industrial warehouses, and more – basically any type of property that can be occupied by a business can be deemed a commercial property. Identify a niche that aligns with your investment goals and expertise. You may be looking for cashflow, or profit, or perhaps you want to put commercial property into your SSAS for longer term income and equity growth.
Niching is important, as focusing on a specific sector allows you to become an expert in that area, understanding the unique challenges and opportunities it presents. For instance, the retail sector requires knowledge of consumer behaviour and retail trends, while industrial properties might necessitate an understanding of logistics and supply chains or demand from SME occupiers in your investment area. Niching can also help you identify opportunities that others can’t, which can result in making higher than average returns, often in sectors with low competition.
