Investing in Commercial Property - Things to Know

The commercial property sector is looking stronger with analysts predicting the sector to make a full recovery throughout the year and expecting positive growth in rent and capital values in 2011. This is good news for many commercial property investors and owners.


For those looking at buying commercial property as an investment, there are some things you need to know about investing in this sector. The industry is subject to a number of fluctuations and can behave differently to other investments - it's important to understand these variations so you can respond accordingly. Here are some elements to consider:

1. Building Design - unlike retail or residential property, commercial office space and industrial property respond more strongly to changes in building design. Compliance and standards can also add to the costs of maintenance of commercial property which can affect your balance sheet.


2. Location - changes to the location can also greatly affect the value of your investment. The relocation of a prime industrial districts or retail closures could drastically change the capital value and potential rental return of your investment.


3. Liquidity - commercial property has much less liquidity than other investments, including residential property. Commercial real estate is heavily reliant on investors, who make their decisions on the state of the market.


4. Risk - the risk involved in commercial real estate investment can vary. Investing directly means you are taking on all of the risk associated with the ownership of the property, and will be responsible for any maintenance costs and upgrades that need to be made. However, there are a number of financial incentives total ownership, including being able to claim depreciation against your income. Meanwhile, if your investment lies with a Real Estate Investment Trust, you'll be sharing the risk with other investors.

When it comes to a sound investment strategy, having a diverse portfolio is key. Real estate helps to offset shorter term investments and a balance of residential and commercial properties are the most practical. Amongst the types of commercial real estate, retail property is likely to be the most secure. Meanwhile, you'll find that industrial property and commercial property listings in Sydney, Melbourne and other capital cities offer higher yields to offset some of increased level of risk.