Diverse Commercial Investment Key to Property Success
Many investors are familiar with the strategy of diversifying their assets and spreading their wealth (and consequently risk) across multiple investment vehicles. When it comes to property investment, many savvy investors recognise the need and the role commercial property play alongside an established residential portfolio; however given the usually high cost of acquiring commercial property, few investors have the financial capability or appetite to add multiple commercial investments to their portfolio. This prevents investors from realising benefits of growth and risk mitigation from investing across multiple industries.
Commercial property investment continues to play a crucial role in building a successful property portfolio for savvy investors as net yields for commercial property are typically between 7-9%, compared to residential of between 3-4%. However commercial property generally experiences lower capital growth compared to residential and can be heavily impacted by economic factors influencing industry segments. Longer vacancy periods, higher interest costs and higher deposits are all factors that can present significant risk factors to investors who may only be exposed to one type of commercial property.
For example, the end of 2017 saw significant differences in performance across the industrial, retail, office and medical sectors, with each segment subject to unique market factors at both state and national levels. An overall flight to quality trend in the commercial space has seen many commercial investors creating more attractive spaces to incentivise long-term leases from tenants and secure cash flow.
While a diverse commercial property investment strategy is attractive to many investors, with quality commercial assets generally costing at least $2 million, with many great assets costing significantly more, this may not be a viable financial option for everyone.
Commercial property syndicates and funds can be considered by investors as an available and logical means to access investment across various commercial segments as they can have the added advantage of an experienced, and hopefully proven, acquisitions team and professional asset management which can better ensure optimum return rates.
When done correctly, investing in commercial property is a valuable asset in a successful investment portfolio and can provide cash flow security. Like any investment, there are several factors that must be considered before deciding if it is the right strategy for you and your goals, and professional advice for your situation should be obtained before making any decisions.