A commercial property is simply a premises in which business takes place. Many investors may have never considered investing in commercial property, purely because they may not fully understand it.
Most people would set foot in a commercial property almost every single day of their life. From their office building to the local supermarket, service station and even day care centre. Generally, commercial properties fall into specific categories, based on what they are used for.
Whenever you go to a restaurant, café, or go shopping at a boutique or shopping centre – you’re stepping into a retail property. Retail is normally located in popular areas where there is plenty of foot traffic, as the types of businesses that own and lease these locations need direct access to customers.
Generally speaking, retail properties are more expensive and have lower yields than other types of commercial properties. That’s often due to the nature of the locations they are in. These are already popular areas with great amenities, and the land value is high for both residential and commercial properties. These properties can be quick to lease out. However, there are some risks as businesses such as restaurants can turnover regularly.
The great thing about retail businesses like restaurants and cafés is that they are often synonymous with a certain location. That means that if a business is successful, they will potentially stay there for a very long time.
If you go to work in an office, then the odds are that your business leases that building. However, in some circumstances they might own it.
Offices can vary greatly from the premium high-rise locations that you might see in a CBD, all the way out to small office blocks in the outer suburbs that might be used by a small accounting firm or lawyer.
Offices can therefore be priced very differently depending on where they are located. One consideration with office space is that businesses might leave if they outgrow the space, as the types of businesses that lease offices don’t always rely on a location.
Industrial property encompasses different types of spaces such as warehouses or manufacturing factories. Typically, industrial properties are not in premium locations and are therefore priced a little lower than other types of commercial properties. This also means yields can be higher at times.
Some industrial properties can be very appealing as tenants stay for long periods of time. Conversely, properties like warehouses are simply renting out floor space and not generally fixed in that location. In recent years, warehouses have been in high demand as many businesses move online and need additional space for storage.
Some commercial properties are considered more specialised and don’t fit into one of the above categories. The most common specialised properties are places like services stations and childcare centres.
While these types of properties can be attractive, they also come with some risk. Specialist properties typically only attract a single type of tenant – one who operates those types of business – whereas other properties such as office, retail and industrial can be used for a wide range of purposes across different businesses.
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