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Why you should consider buying a commercial property

By Greg Bell

Do you currently have an investment strategy that revolves around property? What about dreams to expand your wealth by increasing your passive income? Buying commercial real estate on the Gold Coast is a fantastic way to diversify your investment portfolio as well as increase cash flow.

By owning a commercial property, either in a niche market or in a popular region, and choosing suitable tenants that will provide sound returns in the long term, your passive income will increase. However, commercial property is a different beast to other investments around Australia.

What do you need to know about buying commercial real estate on the Gold Coast?

There are a number of considerations you must keep in mind when buying commercial real estate over residential real estate. For one, the rental yield is typically much higher, but there are some more risks involved.

Rental yields in a commercial property are typically 7 per cent to 9 per cent per annum, according to an article from Commercial Real Estate in March 2016. Residential real estate rental yields are more commonly 2 per cent to 4 per cent.

You may be able to increase your passive income significantly more with a commercial property, but the initial outlay may be far higher than buying a house, for example. The Quest Rockingham in Western Australia sold for $22 million in September 2015. While hotels might not be in your investment strategy, it shows that commercial properties are valued highly.

As with any real estate that you plan to lease to other parties, you need to ensure you're going to have constant tenants. Buying a property in a part of town that's unpopular or that's already too crowded with other businesses could mean people won't want to rent your real estate. Occupancy rates for commercial properties around the country are all above 70 per cent, but that could still leave around 25 per cent of commercial properties without businesses, meaning the owners are paying mortgages or rates without any supporting income.

Buying a piece of commercial real estate also involves identifying a market trend and buying to suit. Currently, large-format retail is a strong market, with businesses such as Bunnings expanding.

"Bunnings stores [are] nationally being repositioned as the retailer looks to increase its retail footprint," said CBRE Director Chris Parry.

"With Bunnings expanding its footprint across Australia, we envisage there will only be more opportunities such as this in the growing large-format sector."

Buying into the large-format retail sector could prove fruitful if other large businesses follow suit in the near future. Leasing your suitable commercial space to them, or even selling for a profit, could build your wealth considerably.

What should you look for when buying?

In order to get the best return on your investment, you might think that a commercial property needs to meet every single one of your requirements. If one box isn't ticked, it's not good enough, right? Not necessarily.

By focusing too much on getting every detail right, you could be missing out on brilliant properties. Overall returns should be your goal, so don't worry so much about lease renewal, for one thing. Do your research before you settle for a property, but look beyond your current boundaries.

"Many investors try to tick every box in relation to commercial investment strength – from location to yield and tenant and lease terms," commented Burgess Rawson Director Shaun Venables.

"But if return alone is your focus, you may need to think outside the square. In many respects, return on investment is a barometer of risk – the greater the risk, the greater the return required."

For help finding the most suitable commercial property for your investment needs, make sure you contact the experienced team at Ray White Surfers Paradise.

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