Grow your property investment portfolio by buying commercial properties in Melbourne.
Understanding Commercial Property Investment:
Buying Commercial Properties
What is Commercial Property Investment?
If you’re looking for positive growth in your investment property portfolio you may want to consider buying commercial properties. Melbourne’s commercial property market is diverse and competitive but offers a wealth of opportunity.
Residential property investing continues to be a popular choice, but diversifying your portfolio with commercial properties can help secure a reliable income stream.
At Raveche Property, we are a premier Melbourne-based commercial buyer’s agent. We work with clients looking to future-proof their passive income and boost their cash flow by investing in the right commercial property.
We source and deliver the right commercial property for your portfolio, from an office space to an industrial site.
The world of commercial property investment can feel intimidating without the right expertise. Our guide takes you through the key strategies and considerations for buying commercial property to help you generate profit for long-term success.
Types of Commercial Properties
It’s important to understand what type of property you’re looking to buy as this helps craft our strategy to secure what you need. In Australia, commercial property generally refers to:
- Office spaces
- Retail
- Industrial
- Speciality Properties
Or any other space where a place of business operates out of or is used as its headquarters. These spaces are most commonly larger than the residential properties we assist clients with.
They can even contain multiple levels or inhabit a large complex. Commercial properties are experiencing a growing demand, presenting themselves as an appealing investment property opportunity.
The world of commercial property can seem convoluted at a glance. With a trusted buyer’s agent present to assist you, we make things clear for an effective property investment journey.
Residential Property or Commercial Property? Where to Invest
Property investment and its potential for income growth have become a hot topic amongst the Australian property landscape. If you’re considering your first (or even fifth) property investment, it’s worth comparing whether commercial or residential property could be right for you and your goals.
Residential property investment typically involves buying homes or apartments/units for rental income or capital growth.
The fundamental differences are the tenants, lease length, and income potential.
Residential tenants usually have shorter lease terms and more variable rental income. In comparison, commercial tenants often sign longer leases with fixed rental increases. Commercial properties may also be bought with an existing lease and hopefully, a quality tenant.
If cash flow is your concern, commercial properties set you up for a high return — but not without a high price. They generally require a larger upfront payment than residential property. The due diligence process also differs significantly from residential buying.
Commercial investment needs a deep understanding of market trends, tenant businesses, and the impact an unstable economy can have on businesses.
Melbourne’s commercial property market is extremely diverse, with many areas to choose from. Potential investors should consider location factors, such as proximity to major business hubs and public transport. Location is arguably even more important for commercial investing when finding a quality tenant.
Your choice of where to invest is a completely personal decision, it ultimately comes down to your risk appetite and property goals. A buyer’s advocate can help identify if investing in residential property is more suitable. Alternatively, commercial investing could unearth valuable opportunities.
Benefits of Investing in Commercial Properties
Expanding your property portfolio for considerable capital growth is the aim of every investor. Below are the benefits potential investors should consider when looking at commercial properties.
- High Cash Flow
Melbourne’s commercial properties can generate higher cash flow than residential properties. Businesses typically pay higher rents, meaning a more sustainable income stream for you. - Exceptionally High Yields
Business sectors in Melbourne are growing, meaning commercial properties can offer high rental yields. A rental yield is the amount of money you make after the cost on the investor from the lease payments. Investors can benefit from these, potentially making commercial property highly profitable. - Long-term Returns
Although commercial properties often require a higher upfront investment, they can offer impressive long-term returns. Businesses typically enter into long leases with commercial properties, some expanding for 3-5 years.This means you have more stability in rental income from your investment. These properties also provide tax benefits, such as deductions on property expenses for upkeep and depreciation.
Typically, commercial properties provide more stability and predictability in passive income than residential property. At Raveche Property, we do due diligence to ensure prospective property aligns with these benefits.
Pre-Investment Considerations
Financing Options for Commercial Property Investment
Entering the Melbourne commercial property market requires considered financial planning. Your initial costs can be significant, but understanding your financing options can make the investment more manageable.
It’s no secret that commercial properties are expensive. To enter the market you may need around $175,000 to cover a 30% deposit, stamp duty, solicitor fees, and building and pest inspections. This amount can change depending on the type, size, and your property’s location, but it is a figure to consider. You do have financing options such as:
- Commercial Property Loans: Banks offer these loans for commercial property buyers. They can cover up to 80% of the property’s value, allowing you to reduce the amount of upfront cash required for your investment.
- Alternative Financing: Besides the traditional bank, you could look at alternative financing options like private lenders or joint ventures. These can provide other avenues for securing the necessary amount.
Is Commercial Property Investment Right for You?
Many clients we work with have an interest in commercial premises. It’s important to know it may not be right for everyone. Commercial property investing requires a high-risk tolerance and a thorough understanding of the market (the latter being something a good buyer’s agent can assist you with).
We frequently see two types of property investors with an interest in commercial spaces:
- Business Owners
Some potential investors we see are business owners themselves. A business owner may want to acquire a new office or operational space. For these individuals, purchasing commercial property can be a strategic move to take control of their business premises and avoid unforeseen circumstances that occur when renting. - Experienced Investors
Another client we see frequently is an experieced investor. They often own residential properties and wants to diversify their portfolio. Commercial properties offer them higher rental returns and long-term income streams from the longer lease terms. These additions may not have been available with their previous residential investments.
Commercial Property Market Insights
Understanding the Commercial Property Market
As you approach the commercial property market, you want to understand its nuances to make an informed decision. In Melbourne, the commercial market is influenced by:
- Economic conditions
- Industry trends
- Local developments
Raveche Property has the local insight and industry knowledge to take you through these market aspects so you know the risks involved.
In commercial real estate, timing is key. What may be the ‘right’ investment can differ depending on the asset class. Office or industrial spaces perform differently based on the current economy and overall demand. Staying informed about market trends and economic indicators can help you identify the right opportunities and avoid poor investments.
Commercial Property Market Trends
Melbourne’s commercial property market has multiple investment opportunities. Key trends our team has seen and noted as worth watching include:
- Office Spaces: Melbourne’s central business district (CBD) and surrounding suburbs have become prime locations for office spaces. Despite the rise of remote work, demand for high-quality office locations is still strong, particularly in these well-located and accessible areas.
- Retail Properties: The retail scene, especially in areas like High Street and Chapel Street, offers attractive opportunities for retail property investments. High foot traffic and a thriving consumer market contribute to the appeal of retail spaces, even in more suburban areas.
- Industrial Properties: Our city’s expanding manufacturing industries mean industrial properties in areas such as the western suburbs and near major transport hubs offer promising investment prospects.
- Specialty Properties: Melbourne also has a growing market for specialty properties. These are properties like medical centres, educational facilities, and hospitality venues. These niche investments can offer rare opportunities for portfolio growth.
Building a Successful Commercial Property Portfolio
As a buyer’s agent, helping our clients build a successful commercial property portfolio is our ultimate goal. We create a strategic approach that balances careful planning with proactive management to benefit our clients.
We start by identifying high-potential investments in prime locations, focusing on properties with strong growth prospects and stable income potential.
For existing investors, we look at different asset types such as an office building or a specialty property. Diversifying mitigates risk and capitalises on varying market segments, if one investment experiences a downturn, the other can keep your income stream stable.
Once you’ve got your investment property, regularly assess and optimise it to enhance value and appeal. This could be through renovations and upgrades. We also recommend maintaining strong relationships with tenants, property managers, and industry professionals. This makes operations smoother and assists in long-term success.
Location, Location, Location: Finding the Right
Commercial Property
Location is often the most critical factor when investing in a Melbourne commercial property. Ensure you heavily research the location of your potential investment, knowing the area, its features, and council rates.
The right location can drive demand and ensure quality tenants as your property can suit many businesses. Consider the following when looking at property locations:
- Visibility and Accessibility
Properties in high-traffic areas or with excellent visibility are more likely to attract tenants and business owners. Proximity to public transport, major roads, and parking facilities increases a property’s appeal. - Market Demand
Research the demand for different asset classes of commercial properties in various Melbourne suburbs. Areas with growing business districts or high retail activity might offer promising investment opportunities. - Future Development
Although commercial properties often require a higher upfront investment, they can offer impressive long-term returns. Look at planned infrastructure projects or urban development plans in the area. Upcoming improvements can increase property values and attract new tenants.
Adding Value to Your Commercial Property Investment
Reworking Your Space
Now that your property is ready for lease, the next essential step is to add value to increase its profitability and overall worth on the market. This might be through renovations, expanding usable space, or incorporating contemporary features.
For an office building, this might be through a new fit out. If you’re investing in an industrial space it could be strategically renovating to get the most out of the space. The goal is to elevate the property’s value and optimise your investment’s financial performance.
Purchasing Under Value
One of the most effective strategies to enhance your investment’s value is purchasing below market value. This may sound simple, but this can be tricky if you’re new to the market. This is where a professional buyer’s agent can assist with great value. Acquiring property at a lower rate positions you ahead financially and provides a solid foundation for future appreciation.
A commercial buyer’s agent can also help you source off-market properties or properties before they are publically listed, which usually allows you to obtain a lower purchase price. If you can buy your investment property for under market value you can greatly increase your return.
Increasing Your Space
Increasing the square meterage of your property or reconfiguring the layout can substantially boost its market value. It’s all about getting creative with the space available to you.
By expanding usable space or dividing larger areas into smaller, more functional units you can potentially attract a broader range of tenants and ask for higher rents. This flexibility can turn a standard property into a more versatile space.
You can also focus on highly desirable assets such as additional storage units or parking spaces. These features are often in high demand in Melbourne’s competitive commercial real estate market. They can give you a notable increase in rental income and property value.
Investing in these amenities enhances the property’s attractiveness and makes it more competitive in attracting and retaining tenants.
Investment Strategies and Considerations
Pros and Cons of Commercial Property Investment
One of the significant advantages of commercial property investment is the potential for higher rental yields, especially in comparison to residential properties. Commercial properties often offer longer lease terms, which can lead to more stable and predictable income.
There’s also potential for substantial long-term capital growth, particularly in Melbourne’s thriving business hubs.
However, investing in a commercial property does come with risks. One notable downside is the higher potential for vacancy rates, especially during economic downturns or changes in market demand.
With the increase of remote work and working from home, office spaces in particular have decreased in demand. In comparison, residential properties can have unstable tenant activity but the requirement is always there.
Thorough research and due diligence are essential to mitigate these risks and ensure a profitable investment. With Raveche as your buyer’s agent, we examine these potential risks with great attention to detail to ensure you’re investing wisely.
Diversification and Tax Benefits of Commercial Property
There’s no one-size-fits-all approach to property investment. While commercial property may be an appealing investment opportunity, it shouldn’t mean you never invest in residential properties. Diversifying your portfolio by including commercial and residential properties can be a strategic way to mitigate risks.
If you’ve got both types of investment, it’s easier to manage market downturns and capitalise on the strengths of each sector. A diverse portfolio means you can stabilise its performance and reduce negative conditions of either category.
Commercial investors can take advantage of significant tax benefits. Tax deductions are always appealing, and utilising your expenses such as property management fees, maintenance costs and depreciation can help you save considerable amounts each financial year.
Leveraging these tax advantages can enhance the overall profitability of your commercial property investments and improve your financial returns.
Building Relationships in the Commercial Property Industry
A distinction between commercial and residential real estate that we see working in the space, is the emphasis on relationship-building. Strong connections with tenants, property managers, and industry professionals can make the difference between a thriving or poor investment in the commercial property sector.
Establishing trust with your commercial tenants can ensure a smoother operation and higher tenant retention rates. Similarly, maintaining good relationships with property managers can provide valuable insights, support, and potential business opportunities.
In the commercial real estate world where connections can become tangible benefits, investing in these relationships can be as important as the properties you purchase.
A benefit of using a buyer’s agent is our extensive network. We work with trusted allied professionals and can put you in contact with the best in the industry to help you achieve success. With the right people in place and maintaining these relationships, you achieve more favourable lease terms and better property management.
We offer stellar property management services at Raveche to work with you from end to end. From the search to settlement and the lease to quality tenants, Raveche is here to take care of every detail. We work to make the process smooth and efficient at every step.
Make The First Step In Your Commercial Investment Journey
Your property portfolio will never look better with Raveche on your side. Our personalised and professional service can help you find the right investment to suit your unique needs. With a wide network and proven track record (look at our testimonials), we’re the missing piece you need for a successful investment journey.
If you want to maximise your portfolio by buying commercial properties with the experts, contact Raveche Property today for a free consultation.
