Eight Factors to Consider While Investing in Commercial Real Estate

The demand for commercial real estate (including standalone shops, retail and office space and warehouses) has increased by nearly seven percent over the last two years. This is because an increasing number of people are investing in commercial real estate in order to supplement their incomes.

If you are considering investing in commercial real estate, factor in the following:

1.       Commercial real estate is usually 10 to 12% more expensive compared to residential real estate and the resale value is 7 to 10% higher.

2.       Rentals are 3 to 5% higher compared to a residential property. Security deposits are higher as well, and range between one and two years, as opposed to six months for residential real estate.

3.       The return on investment (ROI) for commercial real estate ranges between 6 and 12%and is considerably higher than that of residential real estate which ranges between 2 and 4%.

4.       Rental agreements for commercial real estate usually last for anywhere between 3 and 10 years. This ensures a steady cash flow for owners, and minimizes the need to look for a new tenant every few years, which can be the case with residential real estate.

5.       Amenities that attract tenants interested in renting retail and office space include round-the-clock security, ample water supply, back-up generators, reserved parking and elevators, as well as effective fire and security alarm systems.

6.       Once vacant, it takes longer to find a suitable tenant for a commercial real estate compared to residential real estate. As a result, commercial real estate tends to remain vacant for a longer period of time. Furthermore, if a commercial real estate remains vacant for more than six months, the value decreases by three to five percent.

7.       Areas attracting the most investment include multistory buildings located on the outskirts of city and as well as coastal areas.

8.       Prices of commercial real estate (including plots, standalone shops, and office and retail space) are expected to increase by 10 to 20% this year and rentals by 15 to 20%.