Weigh up the risk to develop your commercial property strategy

When it comes to commercial property investing, do you diversify or find a niche sector? Regardless of the strategy you choose, there are always risks. However, those risks can be weighed against potential opportunities and returns, depending on the nature of your investment.

We’ve taken a look at recent trends and opportunities to help you develop your own investment strategy and start enjoying solid returns. 

Why invest in commercial property?

Ask any agent and they’ll tell you that the key benefit of commercial investing is achieving a higher rental return than residential investments.

Commercial property net income returns are “typically in the range of 7 to 9 per cent per annum compared with 2 to 4 per cent per annum for residential properties,” according to NSW commercial agency Norwest.

To maximise your rental yields, it can pay to invest in sectors that are in particular rental demand. So keep your eye on what trends are influencing the market.

Identify market trends

Tourism is a growing sector of the Australian market, which has led to a boom in investment opportunities. The upswing in tourism is due to the falling Australian dollar coupled with the rising number of inbound arrivals from overseas.

For example, Bounce Backpackers in the Sydney CBD recently sold for a whopping $18.3 million to a private offshore investor. Not to mention the $22 million sale of the Quest Rockingham in Western Australia in September this year.

With occupancy rates across Australian capital cities above 70 per cent, and close to capacity in Sydney and Melbourne, it’s not hard to see why.

Diversify your portfolio

In a fluctuating Australian economy, it can be beneficial to diversify your investment portfolio in order to spread the risk of your investment.

Commercial property sectors include offices, industrial, retail, hotels, rural and agribusiness, healthcare and retirement living, as well as other specialty properties.

Commercial investment company Heathley Asset Management recently did just that, selling a portfolio of four office and industrial properties valued at around $65 million in a bid to increase its focus on health and medical assets.

Anticipate market peaks and troughs

While capital gains are not a leading factor in commercial investing, it does help to find a bargain to facilitate capital growth. To find this, it’s important to monitor the market for peaks and troughs based on economic, social and other factors.

An example of a commercial sector gaining momentum is the rural and agribusiness sector.

Finance wisely

Many private investors are using their SMSF to invest in commercial property, but this is not without risks. Often high-rental-yield properties have a trade-off of low-capital-growth rates, so it pays to seek professional financial advice before embarking on an SMSF property investment.

Commercial investing can achieve great returns, provided you embark on a well-researched, risk-measured strategy that is within your budget.

See which commercial properties are available and start planning your investment strategy today.