And the proof is in the latest figures from the Australian Bureau of Statistics (ABS). As of June 2022, data showed that the nation’s total value residential housing increased by $221.2 billionwhich brought the overall value to $10.2 trillion, the highest value on record.
But while residential properties remain the apple of investors’ eyes, Maria Milillo, business support manager for property management at Raine & Horne, suggested commercial property could also make “great sense” as the next addition. to its real estate portfolio.
Here are four reasons why investors should consider commercial property:
1. Diversification of investments
Commercial properties have very different characteristics and behavior from residential properties in many ways, making them the ideal choice if you are looking to diversify your portfolio.
Ms. Milillo explained that the right mix of residential and commercial properties could help portfolios adapt to the changing needs of investors throughout their investment journey.
“When combined in a diversified real estate portfolio, these differences can also meet the evolving needs of sophisticated investors as they travel the road to yellow-brick investing,” she explained.
2. Solid income
For most investors, earning solid returns on their investment is a top priority. And according to Ms. Milillo, commercial real estate brings this particular advantage to the table.
“One of the benefits of owning commercial property is that leases generally last much longer than residential properties – in many cases three to five years and longer.
“These larger leases offer greater income certainty and generally higher returns than many other asset classes,” she said.
To add weight to her argument, she cited the last Raine & Horne Business Insights report, which found that commercial yields currently range between 4-6% (and in some cases more) depending on property type and location.
For comparison, she cited a separate report from a property data provider. “On the other hand, CoreLogic reports gross (before cost) residential housing yields nationally at 3.2% for houses and 3.9% for apartments,” she said. .
3. Benefits for your small business
If you own a small business, buying commercial property can also offer significant value.
“Investing in your business premises offers security of tenure as well as a chance to control rental costs,” Ms. Milillo said.
She said that with interest rates at historically low levels, there is an increase in the proportion of owner-occupiers in commercial real estate markets.
Ms. Milillo also highlighted the cost-benefit of owning commercial properties rather than renting one for your business. “In truth, it is now cheaper for SMEs to own rather than rent their place of business in many areas,” she said.
4. Reduced recurring costs
Finally, Ms. Milillo noted that owning a commercial property is more profitable than overseeing a residential property.
“The landlord bears many ongoing costs in a residential tenancy, including repairs and maintenance. Managing these expenses can be a nuisance, reducing the owner’s net (after costs) returns,” she explained.
By contrast, Ms. Milillo pointed out that it is more common for the tenant to bear the majority of the property’s regular expenses in the commercial market.
“That means more of the rent goes back into the landlord’s pocket. Even better, the extra cash flow allows the owner (a “lessor” in commercial real estate) to reinvest funds to keep the store, industrial unit or office in good working order,” she said. declared.
Property refers to something tangible or intangible over which an individual or business has legal rights or ownership, such as houses, cars, stocks, or bond certificates.