Why Should I Invest in Commercial Property?

5th Avenue
14 Mar 2022

Why Should I Invest in Commercial Property?

The key to successful commercial property investment is an excellent understanding of the commercial market and how it differs from that of the residential market. 

Firstly, you need to know what is considered a commercial property. 

Commercial property, as you can expect it, includes investments into retail, office buildings and warehousing. However, it can also include more specialised buildings including hotels, hospitals and even land. 

Some of the key factors you need to consider before considering a sale will include the following:

  • Larger upfront investment – commercial property is often more expensive than residential
  • Accessing finance – the banks will not finance 100% of a commercial property and the repayment period is also shorter, often around 10 years. 
  • Location – commercial properties will need the correct zoning. This can be a hurdle, especially when considering more specialised commercial investments. 
  • Economic outlook – the economic environment will play an important role in commercial investment decisions as tenants for the properties will be companies.

The commercial market in South Africa has historically been dominated by property institutions, banks, and other listed companies. Recently we have seen more and more private investors entering the market. 

Here are a few reasons why you should consider a commercial property investment:

  • The Returns – compared to other property investments, commercial properties generally give a better return. Average returns are between 8-12 per cent and can be higher depending on the property.  
  • Less Risk – tenants for commercial properties are often established companies with historical track records of paying rentals. 
  • Long-term commitmentcommercial leases are often signed for 3 years and up, sometimes even going over 10 years. There is a lot less turnover from tenants vs residential property. 
  • Appreciation Value – commercial property values are based on rental returns being achieved. As your rental prices increase over the long-term the value of your property will rise. 
  • Portfolio growth – long-term commercial property investors can use current assets with the potential to appreciate to leverage other investments. 

As with any investment, commercial property still has its risks and needs to be managed carefully. There are great opportunities around and the benefits of owning commercial property are definitely worth considering. 

Let 5th Avenue Properties guide you to the best investment for your needs!

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