Where type of commercial property should you consider investing in?

While a large regional shopping centre is clearly out of reach but for a handful of investors, there are a lot of options to consider. One reason investors decide to invest in commercial is to get access to higher-yielding investments, a challenge for many residential investors. Diversification can also be a driver with many people moving on from residential investment to commercial. For many commercial property types, performance can often be linked to quite different factors that drive residential performance.

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A shop on a retail strip is one of the more popular forms of commercial investment. Buyers tend to like the ability to see their investment operating and feel some control over the type of tenant that they lease to. As a result, yields for this sort of investment tend to be lower, similar to residential levels. This type of investment can also be impacted by expansions of nearby shopping centres, as well as the location of the shop within the retail strip. Ideally choose somewhere with high traffic.

Small industrial properties are also popular with high yields making these popular. If you are familiar with an industrial precinct and the types of tenants that typically occupy the precinct, then this is worth considering. Some investors have done very well buying inner urban industrial, holding and then getting a permit for residential. Changes to planning rules in places like South Sydney and inner Melbourne have meant that many owners have done very well over time.

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While an entire office building is generally out of reach for many private investors, strata offices can perform well and attract high yields. In places like inner Sydney at the moment, tenant demand for this is particularly high, as well as outer suburban areas of Melbourne and Sydney.

Given the high average cost of commercial property, forming a syndicate can allow you to move into higher price points which can sometimes perform better. Neighbourhood centres, a shopping centre anchored with a supermarket and specialty shops, is generally one of the better performing property types, particularly in growth areas. The price of these is however generally well over $15 million, which is out of reach of many private investors.

For experienced residential investors, commercial property is definitely worth considering. But just like any property investment, understanding the drivers of demand and doing your research is critical to getting the best yield and capital growth

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