select
|

How to get started in commercial property

It is generally more expensive to invest in commercial property such as offices, factories, warehouses and shopping centres than in residential property, which is why this sector has traditionally been seen as the preserve of institutional investors and perhaps exceptionally wealthy individuals.

But this is no longer the case, says Jason Gregoriades, a member of the Rawson Property Group’s commercial division.

“Many private investors are now able to invest in commercial property and there are several good reasons for doing so, the first of which is that prices are favourable,” he says.

“Higher vacancy rates following the global financial crisis in 2008/09 resulted in lower demand for most forms of commercial property and created an oversupply that put a damper on prices, which are in many cases are still below the peaks reached during the previous property boom. In the residential sector, on the other hand, prices have in many cases fully recovered now.”

Secondly, he says, the global economy is recovering now, although slowly, and many new businesses are being established that need to rent commercial spaces from which to operate.

“This is especially true in SA, with its young and very entrepreneurial population, and we see rising demand every day for offices, shops and mini-factories to accommodate newly-qualified professionals and start-up businesses.

“With the growth of online purchasing, there is also strong demand for warehousing and premises to accommodate logistics companies and courier services, for example.”

The third reason to invest in commercial property, Gregoriades says, is that the returns are often better than on residential property. The rental yield on commercial property is usually between 8 and 11 percent, compared to an average of 6 to 8 percent at the moment on residential property.

“In addition, the risk to income is often lower in commercial buildings. If you own a small shopping centre and you lose one of 15 tenants, for example, you will only be losing a fraction of your rental income, instead of the entire rent you could lose if you lost a tenant in a house, flat or townhouse. Leases on commercial properties are generally also longer, which helps to stabilise your cash flow.”

Other important positives, he says, include the fact that most commercial tenants will have at least as much reason as you do to keep your property properly secured and well-maintained, and that you are likely to have a much more businesslike relationship with them than you would probably have with residential tenants.

However, as with all investments, it will really pay to do some homework before making any commitment.

“Most people are aware, for example, that commercial properties cost more than residential properties, but many are not aware that the banks will generally require a bigger percentage of the purchase price as a cash deposit on a commercial property.

“In fact, everything will be on a bigger scale, so while you may be earning much more rent on a commercial building, your insurance premiums will also be much higher, for example, and you will most likely be facing much higher repair costs if things go wrong. You need to be prepared for this.”

Commercial property investors, says Gregoriades, also need to ask questions about the location of the property, proper zoning and business rights, the safety and demographics of the area, the condition of the building, the vacancy rates to date and why the current tenants are moving.

“Multiple tenants mean multiple management issues, including tenant selection, leasing and renewal negotiations as well as maintenance and repairs, and unless you are prepared to make this your full-time job, you should really build the cost of a professional commercial property manager into your initial budget,” says Greogoriades.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Feb 2018
      RE/MAX Property Associates’ Table View Office, which services property buyers and sellers along the Table Bay coastline and surrounds, has recently sold a home in Woodbridge Island for R11 million – the highest price paid for any home in the sought-after security complex.
    • 23 Feb 2018
      Choosing to invest in an overseas property can be daunting. But as more and more investors recognise the value of a diversified portfolio that includes property outside of their own country of residence, international property investment is growing in popularity.
    • 23 Feb 2018
      The positive change in South Africa’s political landscape is paving the way for an upswing in the local property market.
    • 22 Feb 2018
      An excellent credit score is one of the most priceless assets a potential home buyer can have. This tool has the power to secure favorable mortgage and refinancing rate, influencing everything from the size of the loan repayment to the interest rate on the home loan.
    • 22 Feb 2018
      What do you do if you love your home’s location and the area, but the home no longer fits your growing family’s needs? Do you stay and renovate your existing home or find a home that meets your developing criteria?
    • 22 Feb 2018
      While every owner wants to sell their property at the best possible price, overpricing a home can be the kiss of death for a sale.
    • 21 Feb 2018
      Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
    • 21 Feb 2018
      The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK