Sydney's inner and city fringe commercial property has regained its position as a prime investment. While residential slowed last year, commercial property rose supreme and investors showed no fear of rising interest rates. Even foreign interest remained high despite the rising Australian dollar. CBRE research indicates commercial property sales in the 3rd quarter of 2010 were 268% higher than 2010's second quarter, and 75% above the same period in 2009.
Office suites dominated sales. Investors identified high employment and business confidence would making investment risk low. As a positive economy ended the GFC, demand and rent grew due to limited CBD supply. Small business and executives returned to CBD offices after working from home, whilst other businesses expanded.
Like politics, commercial and residential property seems to divide investors into two disparate parties. Each option has unique pros & cons which appeal to different people's investment situation. However, the old adage "Don't put all your eggs in the one basket" is true. When commercial markets are slow, often the residential real estate market is booming and vice-versa, so diversifying your portfolio to include commercial is a good long-term investment idea.
PROS & CONS of COMMERCIAL:
Long Lease: Commercial property presents the stability of a long term lease, often secured by a bank guarantee. A "set-and forget" lease of 3-20 years with 5 year options to re-let at end of term gives you peace of mind, whereas residential leases are only locked in for 3 to 12 months.
Risk: Balancing the benefit of a long lease is the fact that commercial properties generally have longer vacancy periods: months as opposed to weeks in residential. Also, the commercial market is less predictable and in poor economic conditions, demand drops and leasing empty property becomes difficult. However, existing commercial tenants are generally low-risk, being less likely to default on rent.
Return: Higher risks associated with commercial investment gives reward of higher return: 7%-10% net compared to residential's 5% average. This is achieved by high rent, depreciation deductions and less expenses as tenants pay outgoings such as council rates, insurance and maintenance.
Protecting your property: Commercial tenants have a vested interest in caring for the look and condition of your property as it reflects their image to clients and often employ professional cleaners to regularly maintain the property.
Rent Reviews: Rent review is essentially guaranteed, written into the lease at around 4% or CPI. Commercial leases are very detailed contracts, prepared by solicitors.
Market Entry: Lenders may offer you a 95% or 100% loan on residential, but commercial property generally requires 30% deposit and higher interest rates. Furthermore, loan approval may be difficult on untenanted commercial investments. It is generally easier to buy residential property, and cheaper. Commercial prices are often assumed to be high, due to CBD locality and large size of many retail and industrial spaces. However, small strata offices are a fantastic first investment and you may be surpries how affordable they are. Try these Smart Buys
KEEN TO KNOW MORE? Click these links:
By Martyne Ford -Sales Agent and Marketing Manager, Sydneylinks Real Estate E: martyne@sydneylinks.net
UNIT CAPITAL GROWTH OUTPERFORMED HOUSES: Latest RPData research is great news for smart investors who anticipated this trend and bought investor units: Units now outperform houses in capital growth (7.3% growth in unit values, beating 7% for houses) In the past 5 years there has been a switch to demand for units and this trend looks set to become the norm. Why?.............
NO PLACE LIKE HOME in HIGH DENSITY: In the mid 1990's, only 25% of property purchases by homebuyers were apartments. Now 35% of homebuyers are choosing units in high-density urban locales.
WHO IS DRIVING THE CHANGE?: We no longer all yearn for a big house and backyard. Many young singles, busy working couples and empty nesters prefer the convenience of a low-maintenance apartment. Units are generally located close to amenities these demographics demand: transport, cafes, restaurants, boutiques, galleries, clubs and the city where they study, work and play.
APARTMENT AFFORDABILITY: Furthermore, units are on average more affordable, allowing these groups to purchase in a booming market. According to RPData, the average Sydney unit is $125,000 lower than an average house.
INVESTMENT YIELD: Even with current Sydney sale prices remaining steady, rents continue to rise. Rent returns on units are generally higher, partly because they tend to be located in high demand areas close to inner city workplaces and all amenities. Thus, unit price growth is further boosted by high demand from investor buyers.
BEST HIGH DENSITY SUBURBS: Looking to buy a unit? Potts Point, with one of the highest densities in Australia, was famously nominated by Paul Keating as a success in urban design. Here, a respect for quality in old and new architecture has created character and beauty despite density. Paul Keating described other suburbs' buildings as "ice cube trays" that were a "mess on the pavement".
INVEST NOW: We have a fantastic selection of property to purchase right now. See Sydneylinks website sales list or contact Sydneylinks Sales Agents: Martyne Ford and Trish Muljono. We're proud to represent efficiently designed property close to the city in the rich culture of the Eastern Suburbs and city. Many of our current sales are in Potts Point amidst fantastic cafes, boutiques, restaurants, galleries, parks and theatres. Ever-popular to buy and sell!
By Martyne Ford -Sales Agent and Marketing Manager, Sydneylinks Real Estate
RPDATA's full report on "Higher Density Living Gaining Popularity"
http://www.vision6.com.au/em/message/email/view.php?a=9640&id=734468
RPData blog "Rents and Yield are on the improve"
http://blog.rpdata.com/
Paul Keating's "Ice Cube Tray" speech as covered in Telegraph http://www.dailytelegraph.com.au/money/money-matters/paul-keating-takes-apart-sydneys-ice-cube-tray-high-rise-living/story-fn300aev-1225838889388
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