Investing in commercial real estate can feel like a big step, especially if you’re at the beginning of your journey.
We’ve compiled a breakdown to help you understand the main differences from residential, some industry terms and what to consider:
What are Industrial Properties?
Think warehouses, factories, and storage spaces. These are great for long-term leases where tenants often cover extra costs like maintenance and taxes. Look for places near transport routes, with easy access and room to adapt for the future.
OK, what are Retail Spaces?
From small stores to big shopping centres, retail properties depend a lot on location. Good visibility and plenty of foot traffic are key. Pay attention to the mix of businesses in the area and how flexible the space is for different uses.
What are Office Buildings?
These range from small individually owned/strata titled offices to larger multi storey buildings. Location is important, along with things like parking, amenities, and tech setup. With more people working remotely, some spaces now cater to flexible work setups, so keep that in mind.
When choosing where to invest, think about your goals, budget, and how much risk you’re comfortable with. Do your homework or chat with a property expert to make a confident decision.
Investing in commercial property can offer several advantages compared to residential real estate. Here’s a straightforward comparison to help you decide:
- 1. Higher Returns – Commercial properties often provide higher rental yields compared to residential ones. While residential properties might generate 3–5% annual returns, commercial spaces can bring in 6–12% or more, depending on the location and type of property.
- 2. Longer Leases – Tenants in commercial properties typically sign longer leases (3–10 years or more), offering steady and predictable income. Residential leases are often shorter, like 6–12 months, leading to more frequent tenant turnover.
- 3. Tenants Cover More Costs – In commercial real estate, tenants often pay for additional expenses such as property taxes, insurance, and maintenance under “net leases.” In residential properties, landlords usually cover these costs.
- 4. Business Relationships – Commercial leases are more business-oriented, which often means more professional relationships with tenant
s. In residential, you’re dealing with individuals, which can sometimes involve more personal situations.
- 5. Value Growth – The value of commercial property is often tied to its income potential rather than market trends. Improving the property’s revenue (e.g., raising rent or optimising space) can directly increase its value.
- 6. Diverse Opportunities – Commercial properties come in various forms—retail shops, offices, warehouses, industrial units—each catering to different types of investors and offering diverse revenue streams and relationships.
Some Challenges to Consider
- Higher Upfront Costs: Commercial properties usually require larger initial investments.
- Market Sensitivity: These properties can be more affected by economic cycles.
- Specialised Knowledge: Managing and leasing commercial spaces often requires more expertise than residential properties.
If you’re looking for steady income, higher returns, and don’t mind the complexities, commercial property can be a great choice. Residential, on the other hand, might suit those looking for a simpler entry point or properties with a broader appeal.
Nick Selbie
Director – Commercial & Advisory
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Nick is at the forefront of delivering tailored strategies and results that align with each client’s vision within acquisitions and buyer’s advisory services, commercial leasing, property management and tenant representation. Nick thrives on building relationships and ensuring every client receives the highest level of service.
