The current environment has many asking whether investing in commercial property is a good idea. With conflicting media reports and best-to-worst case scenarios reported daily, many are questioning this more and more frequently.
Answering this question isn’t exactly black and white. But there are a few key factors to consider when making your decision.
First, what are commercial investment properties?
These are properties that can be used for business activities. Some of the most common commercial property types include:
- Office buildings
- Hospitality venues
- Retail centres
- Industrial warehouses
- Accommodation facilities such as hotels
Some commercial property types aren’t so obvious as you don’t usually perceive them as physical buildings. But if they are producing a commercial-based income, they are a commercial investment. Some examples include private car parks, taxis and farmland.
Top three considerations when choosing to invest in commercial property
1. Investment strategy
When deciding if you should invest in commercial property, your investment strategy must always be front of mind. Property, whether it’s residential or commercial, is a long-term commitment so it’s always best to be strategic rather than reactive.
If you’re investment strategy includes commercial property, the key consideration is the sector of the commercial market you’re going to home in on. Do you want to invest in office space? Or maybe agriculture or accommodation? Mixed-use is also an option where you combine office space, retail and residential into the same property.
2. Supply and demand for commercial property types by location
You don’t want to enter an already oversupplied market, but at the same time you don’t want to miss out on investing in an industry that’s already thriving.
Supply and demand is a key factor when determining if investing in commercial property is a good idea. You don’t want to purchase an office building in a location where owners are finding it hard to find office tenants. Meanwhile, farmland in reliable rainfall areas are in high demand but low supply, with owners holding onto the property.
Some factors around the supply and demand that affect a commercial investment property can be hard to predict. The key thing to look out for is the longevity of the property.
For example, retailers are fighting for warehouse space as consumer online-shopping demand reaches record heights. Online shopping is here to stay, with major retailers shifting strategies to meet the online demand. Therefore, investing in warehouse space suitable for ecommerce could be a good long term option.
3. Deductions available
A successful commercial investment property offers reliable long-term cash flow, lower ongoing costs and lucrative depreciation deductions.
Commercial leases are usually much longer than residential, this is where the reliable long-term cash flow stems from. It’s common for commercial leases to last five, ten or even fifteen years as a business needs a reliable base for its operations.
Depreciation deductions aren’t often a key consideration when choosing to invest in commercial property, but they should be. As a non-cash deduction, and the highest following interest repayments, depreciation can boost your cash flow by tens of thousands in just one year.
During this year alone, BMT Tax Depreciation has found record-breaking depreciation deductions for commercial properties. The following are just some examples of the lifetime deductions BMT has found.
- $4.2 million for a poultry farm in New South Wales
- $14 million for an office building in Victoria
- $40 million for a CBD hotel New South Wales
- $205 million for a solar farm in South Australia
- $330 million for a major shopping centre in Queensland
BMT can provide an obligation-free depreciation estimate of any commercial building you are considering. To learn more about the additional commercial services BMT offer, visit their commercial property page or Request a Quote.