Calculating Returns on Commercial and Industrial Real Estate Investments
When it comes to property investment returns, finding the right balance between seller and buyer expectations can be challenging. Often, disagreements on selling prices arise due to differences in desired returns. Sellers may aim for lower yields, while buyers seek higher returns, leading to unresolved transactions.
Numerous factors influence property purchases, varying between owner-occupiers and investors seeking returns on their investments. Investors focus on lease length, current rental income, lease covenants, building condition, monthly expenses, and especially the property's long-term location prospects. Conversely, owner-occupiers prioritize vacancy and location tailored to their business needs, often willing to pay a premium for a property they can own instead of renting.
Calculating returns involves assessing the property's net annual income. Buyers consider all factors mentioned to determine an offer aligned with their affordable yield. Importantly, buyers should ensure their purchase price reflects the net income to avoid paying for property expenses separately.
Private property funds typically offer lower yields compared to listed property entities due to shareholder expectations for immediate returns. In contrast, private investors often take a longer-term view, intending to retain the property as part of their investment portfolio. Additionally, commercial and industrial returns vary across regions and provinces.
Currently, commercial property investments face pressure due to high vacancy rates, resulting in relatively low returns for sellers. Conversely, industrial property experiences high demand, leading to a shortage of available stock and sellers achieving higher returns.
At 5th Avenue Properties, we specialize in commercial and industrial investments. Contact one of our consultants today to explore your investment opportunities!