Is It Time To Start Looking Into Commercial Real Estate Investments?
With residential property in Melbourne having nothing but negative headlines for the past few months maybe it is time to look into commercial real estate.
We have seen over the last 18 months residential property prices around our city fall. However commercial real estate is continuing to grow steadily and investment from overseas buyers remains strong.
Low-interest rates and the falling value of the Australian dollar are certainly among the reasons for the increase of offshore investment in Melbourne commercial real estate. Higher global demand for Australian commercial property means more competition for scarce assets, which is driving prices up fast. Melbourne’s CBD also has the lowest office vacancy of all Australian CBDs at 3.2 per cent dropping from 3.6 per cent, which was already a 10-year low for the city. Industrial property capital values in Melbourne surged by 20 per cent in the three years to December 2018, with 14 per cent of that growth occurring after 2016. Net face rents edged up 8 per cent during that time also.
At Xynergy Commercial, we have seen many developers scrap their plans to build residential developments to either mixed-use commercial and residential or to commercial only development. A common trend we are seeing in Melbourne is the growing number of mixed residential and hotel projects as developers are struggling to sell such a large number of residential units.
While purchasing commercial property is quite similar to purchasing residential properties, renting and leasing out are two totally different experiences.
For one, the demand for commercial properties could be less than that of residential properties given that everyone needs a roof over their head but not everyone is looking for an office space or warehouse to run their business. Due to the nature of the demand, it creates a natural delay which causes the leasing turnover for commercial properties to be generally longer than residential.
The commercial property market is incredibly diverse, and it can be hard to compare apples with apples when selecting a high performing investment to add to your portfolio. If commercial real estate is a good choice which one is right for you?
Retail stores include everything from supermarkets, dry cleaners, cafes, fashion stores and so on. Unlike residential leases, retail leases are usually signed for at least five years. This gives the tenants time to establish their business and offers landlords rental security. Another benefit for investors is that the tenant, not the landlord is responsible for a lot of the outgoings such as certain taxes, insurance, utilities and maintenance costs.
The most successful retail hubs are located in areas with high population growth and plenty of affluent young adults and families. Before doing your own detailed research into demographic hotspots, take a look at where the retail giants are opening their new stores.
Industrial property can be small single or double story buildings that are zoned for industrial use. They are usually a mix of office and warehouse space used by small businesses ranging from mechanics to startups. A large industrial property includes large and medium-sized factories and warehouses that are used for manufacturing or storage of store goods. On the larger end, you have big box industrial sites. These are used for logistics and distribution centres that can hold then send out finished goods to stores for customers like Amazon.
Industrial spaces are enjoying low vacancy rates at the moment down to 2.5% in Melbourne, making them very popular with investors. Proximity to major transport infrastructure – roads, rail, ports and airports – is the key to smart industrial property acquisition. By choosing a new-generation industrial facility, with all the latest warehousing technology and features built-in, you will ensure your property offers everything tenants need to meet the rapid, high-volume demands of online fulfilment.
However, as these properties are more vulnerable to changing market conditions banks will see them as more risky investments and require a larger deposit, usually 30% in order to invest.
Office space can be found in single buildings, business parks and big CBD office towers. Office’s require desks space, meeting rooms and facilities including kitchens and toilets.
There’s quite a list of things to consider when it comes to investing in office space. Everything from available natural light to on-site car parking will make a difference to how popular your investment is with tenants.
Like with industrial and retail, office real estate tends to have longer leases with most companies wanting to establish themselves in a single location long term. As with any type of investments, it is recommended to seek help from an expert if you have any questions regarding any aspect of commercial real estate. Our experienced consultants at Xynergy Commercial have the knowledge and skills to be able to make your commercial real estate journey smooth and easy.
Contact Xynergy Commercial today!