The right property

With retail outlets, offices and industrial estates all sitting at the heart of our economy, it can be hard to decide which type of commercial property to invest in.

Many first-time commercial investors are business owners looking to end the rent cycle and acquire an asset at the same time. If you don’t own your own business, a good starting point is to consider the same principles that apply to residential investment. Look for properties in growth sectors in areas with low vacancy rates. A drive around any light industrial estate, CBD or retail strip will quickly reveal the ‘for rent’ signs and give you a pulse check on local supply and demand.

You should also consider local infrastructure, such as transport, and even commercial entities that may be a drawcard for others. In the retail sector, a big brand name with a long-term lease (called an anchor tenant) can be the attraction for smaller operators looking to cash in on the high foot traffic the big name will generate.

Commercial tenants also look for properties with high visibility, easy access and plenty of parking, especially if there is no public transport nearby.

If looking at a light industrial property or office complex in a commercial estate, check it is not in a flood zone. Some commercial complexes are built in low-lying areas at risk of riverine or flash-flooding. Flood cover is not always offered on commercial properties and can be costly when available, so assess the risk thoroughly before you invest.

Commercial property agents will happily help you with the property hunt. Keep in mind their job is to sell, so make sure you do your own homework on values, vacancy rates, average rents and potential tenants for any property put forward.

Another helpful starting point is your mortgage broker. They can help you work out your budget based on your existing loans and financial arrangements and find the right loan product for your circumstances.

The right tenants

Attracting the right tenants is the key to successful commercial investment. Concerned by the potential for long vacancy periods, commercial property investors often snap up the first tenant who comes along. Take time to research whether the applicant is in a viable sector with strong demand (think health care and organic foods) or a waning one, such as DVD rentals. While you can lock any tenant into a three-year lease, an insolvent business will not be able to pay the rent, no matter how many demands you place on it.

On the other hand, a flourishing business with a strong track record may request a longer-term lease – in some cases up to 10 years. You may even be able to request a bank guarantee for the term of the lease.