By Rich Harvey, CEO & Founder, propertybuyer.com.au
There has been a significant shift in the type of people looking to buy commercial properties over the past few years, with a new wave of investors increasingly engaging in the sector. There are several reasons for this trend and why commercial real estate is delivering distinct advantages to its stakeholders right now.
However, the sector is not without its risks—and the consequences of poor choices can be severe if you don’t have an experienced, independent advisor on your side.
To explain why certain commercial property assets are thriving, I spoke with our Propertybuyer commercial buyers’ agent, Alberto Da Grava. With an extensive reputation and years of expertise in the sector, Alberto’s knowledge and contacts are second to none.
Alberto shared some key insights about commercial property that every investor should understand before making a purchase.
Demographic Shift
Alberto noted that the demographics of commercial property buyers have changed significantly in recent years.
Commercial investment is no longer a “niche” option; the asset class has become far more mainstream. With an abundance of accessible information – ranging from books and podcasts to blogs and articles – the sector is now within reach for a broader pool of investors.
As a result, commercial real estate, once dominated by high-net-worth individuals, superannuation funds, and businesses, is increasingly attracting conventional buyers who previously focused solely on residential properties.
Even within this group of everday Aussie’s who invest in commercial, demographic changes are evident. In the past, a typical owner might have been a retiree who had previously run a business from a property they own. Once they stepped back from worklife, many would choose to retain and lease out the businesses premises as a source of post-work income.
Today, that landscape has evolved. Owning commercial property has become a mainstream investment strategy as investors look to diversify beyond their one or two residential holdings. An increasing number of young, aspirational investors are entering the sector, drawn by the higher net returns of commercial assets, which make loan servicing easier and portfolios more sustainable. These buyers often feel the pressure of residential negative gearing strategies too. They realise that even a single commercial acquisition can help rebalance their portfolio towards a neutral cash position, enabling continued growth.
Another major draw is the potential for passive income. Aspiring investors aim to replace their work income with cash flow from commercial properties, which generate positive returns from day one and can be gradually built up.
For example, a $1.5 million commercial property could deliver a net income of $90,000 per year, with outgoings covered by the tenant. Furthermore, an agent like Alberto will sources assets in typically blue-chip locations, occupied by secure tenants with multi-year leases that include
annual rent increases. This ensures a reliable income stream while the loan balance decreases over time.
Additionally, well-chosen commercial properties can appreciate in value relatively quickly. Given the shorter lending periods for commercial financing, investors can access equity gains more quickly than with residential properties when they go for refinancing.
That said, commercial real estate comes with risks. As Alberto explains, it is a higher-risk, higher-reward asset class compared to residential.
Without a deep working knowledge of the sector – or an expert advisor – it’s easy to overpay for a property in the wrong location or with structural, design and legal issues. Investors must carefully assess comparable rents and sales to make informed decisions and mitigate risks.
However, with the right choices, the rewards can be substantial.
Conducting thorough due diligence is crucial. Alberto has encountered deals where properties were advertised as lettable commercial spaces but lacked council approval. Without proper due diligence, an investor might not discover these issues until it is too late – leading to serious financial setbacks.
This is yet another reason why having an experienced specialist advisor is invaluable.
The Current Market
Alberto highlighted that commercial asset performance varies significantly depending on location, asset class, and property type. Staying informed about market trends is essential.
For example, the industrial sector has been exceptionally strong for over a decade. In South Sydney for example, some warehouses have even sold for more per square metre than office space. However, this trend will eventually stabilise, creating potential opportunities for savvy investors.
Regardless of the asset class, Alberto believes the most promising gains are in properties with value-add potential. For instance, a property with a short lease and below-market rent could be acquired at a favourable price. While it may offer lower yields initially, investors can significantly increase the rent in the near future. This strategy is particularly useful for experienced property investors who have a higher risk tolerance and adequate financial buffers.
Alberto noted that industrial rents have already risen substantially, but there are still opportunities to extract additional value. While office and retail spaces also offer potential income growth, investors must be selective and ensure that supply and demand dynamics work in their favour.
Overall, Alberto remains optimistic about the commercial sector’s prospects this year. However, success will depend on choosing the right assets in the right locations.
Why not consider adding a high-yield commercial property to your portfolio? With guidance from a specialist buyers’ agent like Alberto, you can mitigate risks while maximising potential returns. This strategic move could strengthen your financial position and bring you closer to achieving your long-term investment goals.
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