Commercial property investment is understandably attractive, particularly when compared with the residential market. Leases tend to run longer, income is more reliable and there’s generally less volatility to contend with.
But aside from the barrier to entry, which is often significantly higher, an assortment of other factors make commercial property investment and management more nuanced than the novice may anticipate. Agility is essential, and not only in the day-to-day sense. Foresight takes on different forms in that it’s not just about maintaining oft-fragile liquidity, but also in understanding how your investment control can dictate appreciation.
Agility bourne of leverage, liquidity
Adding value to a given property is often achieved through familiar means: renovations, upgrades, cosmetic enhancements or lease renegotiations. But those are mostly short-term drivers of liquidity. True profit margins are dictated by leverage and hedging – specifically against inflation, or by way of a diversified portfolio.
For instance, Michael Yardney’s renowned Property Update notes that by borrowing up to 70% of a commercial property’s value, investors can assert enough control to make real changes while retaining enough cash flow to expand their holdings elsewhere. This guidepost serves the broader wealth accumulation goal; to wit, commercial property values (and their accordant rentals) have traditionally outpaced inflation, so, in theory, the wider the range of investments, the more flexibility and diversity in returns the investor is afforded.
Open door, open mind
Successful commercial property investors all share a willingness to adapt, not only to factors beyond their control, such as the costs of building materials or tax rates, but to shifts in technology. That may mean something as tangible as ensuring the wireless infrastructure of a property is sound and unspoiled, or understanding more abstract concepts, like the ideal size of a retail space in what has become an increasingly difficult sector to gauge.
Likewise, as Deloitte’s 2019 Commercial Real Estate Industry Outlook noted, predictive analytics have become a non-negotiable element of any successful investor’s toolkit. It’s the most all-encompassing and assured technological advancement – favoured by more property investors than the Internet of Things, social media or robotics. And for better or worse, its guidance will influence the perceptions of the vast majority of industry players.
And so, while there’s plenty of nuance to the investment decisions suggested by predictive analytics, the fact remains: In 2019 and beyond any commercial property holder seeking to retain credibility ought to understand the role it plays in market movement – and act accordingly.
For more information on how to stay agile in commercial endeavors, speak to the experts at Ray White Surfers Paradise.