The commercial property market is a very different beast to the residential property market, and it’s important to understand the risks and rewards of buying commercial or industrial property. Here are a few insights to take note of before you put your money on the line.
- The cost of an empty building: Many investors choose to push a 3 to 5-year lease for a commercial property, which makes sense due to the considerable benefits of having a long-term tenant. However, this does make it more challenging to find a tenant and investors should be aware that an empty building can be a reality for prolonged periods and need to be able to carry the costs of these vacancies.
- Supply and demand: Currently, South Africa’s economy is undergoing a difficult time, caught between national issues like the rising fuel costs and land expropriation as well as international issues like the USA-China trade war. All this uncertainty has a negative influence on growth – the primary driving factor behind the success of commercial property investments. Another factor is future developments in your area, as new property developments can present strong competition and reduce potential yields on your investment. While this doesn’t mean that commercial and industrial properties are a bad investment – in fact, there are some great opportunities to be had – it does mean that investment decisions can carry a higher risk and require more intensive research to make a strategic and sound decision.
- Infrastructure development: This is a significant influence on the success of commercial and industrial property investment, as transport and logistics play a key role. If anew infrastructure is planned, it can draw demand towards or away from a commercial property. Again, research and insight into the market is essential for making these risks more manageable and realising a successful investment.
- The size of your commercial property: The larger your property, the greater your risk as they are more challenging to find tenants for and carry higher holding costs.
Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/