All You Need to Know About Commercial Property Investment
Do you have a business idea, but you haven’t found the perfect space yet? Kearney Auctioneers propose a variety of commercial properties that could suit your business needs. Whether you need office spaces, retail stores, industrial units or warehouses, you should have a look on our website for more details on our properties for sale. However, if you are having second thoughts about buying commercial property, here’s some useful information regarding commercial property investment.
Why commercial property?
Commercial property represents a great way of making money, but it is also the best way of diversifying risk in your investment portfolio. It can play a very useful role in this sense, given that the property cycle usually does not coincide with the cycle in equities. As all investment comes at a risk, you should probably have a very good plan before investing in commercial property. Commercial investment opportunities vary in cost and size, but also in risk and return. The return on investment can come from various sources, such as rental income and capital growth. Studies show that rental income provides the highest level of stability in terms of return compared to company dividends for example. When it comes to capital growth, which basically means the increase in the value of property, profit depends of the economic situation. Capital growth is positive when the economy is good, uncertain in periods of slow economic growth and negative during recessions.
Depending on your budget, you can invest directly or you can pool with other investors through a fund. Property funds are used to buy commercial properties like shops, office blocks, retail parks and warehouses. It may also occasionally invest in residential property. Funds have multiple advantages, such as diversification between buildings and tax efficiency for EU or UK commercial property. The 2007-2008 economic crisis taught buyers harsh lessons with regards to commercial and residential property, but in recent years it seems that the market has got itself back on its feet and investment returns from commercial property have increased.
Commercial Property and Inflation
Several economic studies indicate that commercial property might act as a great defence mechanism against inflation, as property value rises proportionately with living expenses. Commercial real estate investments have specific characteristics that can help them keep pace with inflation. For example, rent can be renegotiated when the lease is renewed. The rent on a short-term lease is likely to catch up to inflation compared to a long-term lease. Property values can be another factor. When the economy is growing, interest rates generally rise, pushing property values down. At the same time, strengthening economic growth can bolster net operating income. The more net operating income generated by a property in response to inflation, the greater the probability that the property will also increase in value, even if interest rates increase.