A commercial property includes:
Office buildings
Shop lot
Retail spaces
SoVo, SoFo
Warehouses
Potential advantages of commercial property investment include:
1. Higher Income Yields - Commercial properties usually show a higher level of income when compared to residential property.
2. Stability of Income - Commercial property usually have longer leases when compared to residential properties.
Residential properties typically held on short leases (often 6 to 12 months) while commercial properties will attract longer lease terms between 3 to 10 years, providing consistent and predictable income streams over time.
3. Income Growth – The longer leases of commercial properties usually allow for the owners to increase the rent every two years of the lease (recommends an increase of 5% to 10), thus increasing the return on investment as the lease progresses. Owners of commercial properties generally find it easier to raise their rental rates. One reason is that business landlords are reluctant to relocate.
Business premise’s renovation costs usually range from RM60,000 to RM100,000. Business landlords are usually unwilling to move if they have to pay such a high cost to renovate a new place. So, they may choose to pay a bit more each month.
Or commercial property owners can consider revising their rental rates when new developments are launched nearby. For instance, new MRT station nearby your shop lots, you may increase the rent as the station will increase the crowd.
4. Maintenance Cost – Residential property investors often need high maintenance costs to maintain the property ongoing while commercial investors have the potential to earn enhanced profit and lower cost of maintenance, rates and repairs on the property when the ongoing expenses are written into the commercial lease agreement.
For instance, Mike rented his 1-storey landed house to a family in Puchong for 3 years. After that, the tenant moves out, and Mike checks his house, the wall full of pencil and crayon drawings, toilet bowl blockage, door broken, pipe leakage, and more. Hence, Mike needs to repair all the damaged stuff on his own. That’s why residential property investors often need high maintenance costs.
5. Good Tenants – Tenants of commercial properties, on the other hand, are earning their income from the property. Therefore, it is in their interests to keep the property in good order and to maintain good relations with the landlord. Unlike residential tenants, some of them may not take good care of the equipment and the property interior.
6. Diversification – Commercial property investment can provide diversification across different asset classes and geographic locations. From retail to industrial, by diversifying their portfolio and investing in a variety of commercial assets, investors are also protecting their income and managing risk in the event of an economic downturn.
As with all investments, commercial property investment is also subject to investment risks which must be managed well by the investors. For example, property investors must ensure that the property remains relevant to the leasing market which it serves.
You may contact us if you are looking for best deals in commercial property investment.
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