Very often we tend to identify property investment with residential real estate, mainly and exclusively. As a result, commercial properties have been unfairly neglected. However, the growing number of Aussie investors is recognising the profitable potential of this commercial sector the right way.

For instance, we have been witnessing an indicative phenomenon where let’s call them “everyday investors” (your parents, young couples, and similar) focus their attention on small commercial properties. This is one of the main reasons, we have an extremely competitive commercial property market.

When a commercial real estate is being used for a business purpose, then we classify it as a property asset with the following sectors:

• Retail;
• Office, and
• Industrial;

Each of these sectors is associated with quite different asset classes, cycles, rewards and risks. This is how some commercial property investors can expect up to 5%, while others get a return around 10%, depending on the asset’s risk rating and class.

One of the most important benefits of investing in commercial properties is that you can expect a much longer leasing covenant compared with the residential properties. We are talking about a typical period of three, five, or ten years, with the CPI or fixed annual increases and added benefits associated with all outgoing costs and land taxes, in case a tenant is publicly listed. In addition, we can expect that a tenant will take a much better care of a commercial property.

At the same time, it is worth mentioning that the stimulative high returns associated with commercial property investments can’t avoid certain risks. Compared with the residential properties, you can expect to be far less predictable regarding your commercial property. Why? Well, you should take into consideration the longer vacancy periods and various economic factors, such as consumer confidence, unemployment, etc. Furthermore, commercial property investments can face stricter lending conditions that ask for a deposit between 30 and 50%.

That’s why an average commercial property investor must pay attention to the following key factors:

• The location is essential for both residential and commercial properties. Therefore, you should make sure that your commercial investment is strategically located, with an attention given to the potential zoning restrictions, which may influence the overall commercial potential.
• You also must take into full consideration the development of both commercial building and the site itself.
• You should be aware of multiple commercial investment options. For instance, you can invest in a commercial property with a retail shop. This can be a great way to ensure a double income opportunity. Small industrial factories, retail strip shops, service stations, strata-titled offices, or fast-food outlets can be extremely rewarding options in this sense.

It goes without saying that the number of risks associated with your commercial property investment is much higher compared with the residential properties. Yet, with a thoughtful approach, you will be able to minimise risks and maximise all potential benefits of your commercial investment.