These are the Challenges You’ll Face as a Commercial Property Investor

If you want to invest in property but don’t want to put your money into flipping houses, buying to rent or other residential property investments, then commercial property investment may be the right option for you. With the right research and strategic advice, commercial property investment can offer solid rewards and require less time and administration than residential alternatives. At the same time, it’s important to be aware of the types of risks you face in these investments.

Economic Changes and Commercial Properties

The demand for commercial properties is affected by good or bad economic changes in general as well as economic changes that are specific to the type of property in your portfolio. For example, good economic growth in general means more jobs and more spending, so there is a general increase in demand for commercial spaces – especially restaurants, retail centres, and warehouses. Similarly, a lack of growth causes a decrease in jobs and spending, which may reduce demand for these spaces.

In specific terms, an economy that focuses on manufacturing and is seeing growth in that area will mean demand for plants, factories and warehouses specific to that industry grow in demand. A change of focus away from manufacturing and say, into IT, will see a drop in demand for your manufacturing plant and an increase in demand for office space.

Location, Location, Location

As with residential property, location is everything. For commercial properties, this means accessibility to transport links and proximity to businesses and support that will make it attractive to your tenants. This means doing a lot of research and future planning, like checking for planned infrastructure upgrades or the introduction of a competing commercial area close by. In commercial property investment, high competition is important (showing that it is a desirable location, for example), but this needs to be balanced by supply. Oversupply means a flooded market where you’ll struggle to find tenants and where returns are less lucrative.

High Cost of Entry

Commercial property investment is generally more expensive than residential property investment, so more of your capital will be placed in a single investment. This is especially true when it comes to high-demand retail and commercial space in the CBD, as well as large-size properties. This makes it more sensible to start by investing in smaller, stand-alone retail shops or buildings and to ensure that your investments aren’t too heavily weighted in specific types of commercial property.

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/

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