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Tired of residential investment properties? Commercial may be the way to go.

Are you tired of the problems associated with residential investment properties, such as tenants trashing your property, not paying rent and the ongoing cost of maintenance. Then commercial property may be of interest to you. However investing in commercial property is very different to investing in residential. Commercial property is all about the feasibility of the investment versus the neighbourhood and whether you’ll reap a capital gain in a few years time.

In fact the ideal time to keep a commercial investment property is considered to be 10 years upwards versus the 7 years for a residential property. This is to assist owners avoid the market swings and to really capitalise on upward pricing movements. The commercial property market can be subdivided into the following four areas; • Retail – e.g., shopping centres, supermarkets • Industrial – e.g., warehouses, factories • Office – e.g., office blocks and business parks • Leisure – e.g., hotels, leisure parks and each area offers different opportunities.

There was also a time when investing in commercial properties meant huge sums of money involved but today that is not the case, as in three of the above areas you can often buy strata units. This can make it an effective choice for the small investor, with commercial opportunities presenting themselves from as little as $50,000.

With commercial properties you generally benefit from • A higher guaranteed income on commercial property compared to residential property • The tenant normally pays all outgoings • The leases usually have CPI increases every year and ‘upward only’ rent reviews every three to five years depending on the investment • The tenant is usually required to “make good” at the end of the lease period • The lease offered is generally far longer than for a residential rental lease • Commercial property usually enjoys a fair but steady growth in value • The cost and value of a commercial property is more transparent, potentially reducing levels of risk and uncertainty • Refurbishments are less frequent and less costly than for residential rental property • Commercial properties require minimal hands on management.

Reading the above one might ask “Why doesn’t everybody invest in commercial properties?”. The reasons are simple. Until recently, commercial properties were not in a price range suitable for the smaller investor. They do not reap the huge capital gains that New Zealand residential property does and there is more of a risk associated with commercial property in that unlike residential property where everybody needs a home to live in, there are only so many business’ to take up commercial property and so the property may remain unrented for awhile or when purchasing shops, pedestrian flows can change, which may result in a desirable position becoming undesirable.

When looking for commercial property the most important aspects are the • Location - is the property close to a major city or transport facilities • Tenant - Government or “blue chip” clients are obviously the best • Lease – how long is the existing lease and does it have options and • Management – How you view management will depend on whether you are buying an entire complex or a strata unit Questions to ask when looking for commercial property are • Is it in a growing area? In other words are more businesses moving in than moving out • What has happened to property values over the past 5, 10 years? • Are there any major plans for the area’s future, either good or bad? • What is the current vacancy rate in the area? • Are there “blue chip” tenants or owners in the area? This helps to solidify the areas future growth. Commercial buyers tend to prefer an investment that provides a steady income and relatively free of hassles