Beginner’s Guide to Commercial Property Investment in Australia

Are you in Melbourne looking for a commercial property to invest in? Commercial property investment is becoming increasingly popular for Australians looking to build long-term wealth. It offers an appealing alternative to residential property with higher rental returns, diverse ownership structures, and solid tax advantages.

In this blog, we’ll walk you through the essentials of commercial property investment in Australia, starting with what it is and the types of properties available. We’ll also explore why it's a smart investment, what to look for before buying, the potential benefits, and how a qualified buyer’s agent can help you secure the right deal.

What Is Commercial Property Investment?

Commercial property investment involves purchasing real estate used primarily for business purposes with the goal of generating a profit. Commercial property for sale in Melbourne typically refers to buildings used for business purposes. However, it can also include land intended for profit-generating activities or large-scale residential rental properties. A commercial property differs from other properties in terms of how it is financed, taxed, and what laws apply. 

Types of Commercial Properties

There are several different commercial properties that you can invest in; they are as follows: 

Office Space

Office spaces are typically found in business districts with a dense concentration of companies or areas well-connected by public transportation. They can be standalone buildings or part of a larger complex with numerous private offices, conference rooms, restrooms, and more. 

Retail

A retail property sells goods and services to the public. A good location is very important for a retail business. Hence, most retail properties are located in high-traffic areas such as the city center, markets, and downtown districts. Retail properties have a storefront with large windows displaying the merchandise the owner plans to sell. 

Industrial

Industrial properties are used for assembly, manufacturing, and other commercial purposes. These properties are generally located near transportation hubs like ports, railway stations, or airports, making it easy to dispatch high volumes of goods. Most industrial and commercial properties are concentrated in one area because location plays a massive role in convenience. Industrial spaces have large open areas with heavy machinery, loading docks, and other equipment. Moreover, it is designed so that specialised cranes and other big loading trucks can easily move around to transport the manufactured goods. 

Specialty

Specialty assets are those commercial properties that don’t fit into the traditional commercial assets, such as office, industrial, or retail. They are unique in terms of their design, purpose, and use. Speciality assets generally include healthcare facilities, entertainment venues, amusement parks, stadiums, arenas, and others. 

Why Invest in Commercial Property?

Commercial property is a sound investment because it offers a higher overall return on investment and has fewer problems than residential properties. Depending on the location, these properties also have higher appreciated potential. Moreover, commercial property can help diversify your portfolio if you are a seasoned investor. It reduces financial risks and provides stability. 

What to Look for When Investing in Commercial Property?

Before investing in a commercial property, there are certain things you need to look out for; they include:

Location

The most crucial factor to consider when investing in commercial properties is location. Location was, is, and will always be the most critical factor when choosing a commercial property. The property should be close to essential amenities such as transportation hubs, healthcare facilities, other partners, markets, warehouses, green space, and more. Commercial properties located in tax-exempt areas are also a plus point. 

Vacancy

Another obvious thing to look for is the vacancy rate.  The term vacancy rate refers to the percentage of unoccupied commercial property in the area. This rate showcases the overall performance of the real estate market in the particular area. A high vacancy rate means a weak market, and a low vacancy rate indicates a strong market. 

Building

Your commercial building can be one of two types: new construction or an existing property. New constructions offer greater options for customisation and modern amenities. However, they can be more expensive and may come with uncertainties, especially if the development is in a newly established or unfamiliar neighbourhood. On the other hand, existing properties may offer fewer customisation options, with fewer uncertainties attached. They provide faster accessibility and, in many cases, lower prices. 

Tenants

Tenancy in common (TIC) is a form of property ownership where two or more individuals hold fractional ownership in a single property. Each co-owner owns a specific share of the property, which can be equal or unequal. TIC can be advantageous for owners who want to pool resources to invest in high-value real estate, which they may not be able to own individually. 

Benefits of Commercial Property Investment

Commercial property investment comes with a host of advantages. Let’s explore them below:

Stronger Rental Returns

One of the most crucial benefits of investing in commercial properties is the more substantial rental returns compared to residential properties. The typical rental yield is 5% to 12% higher. The higher rental returns on commercial properties are mainly due to longer lease terms, a broader range of potential tenants, and less sensitivity to personal use. 

Flexible Lease Agreements

Commercial properties also offer more flexibility in terms of lease agreements. A triple net lease (triple-net or NNN) applies to commercial properties. In this lease, the tenant promises to pay all the expenses related to the commercial property, including real estate tax, insurance, and maintenance. 

Outgoings Covered by Tenants

When a triple net lease is in place, the tenants cover the property's outgoings. This includes water, electricity, the costs of operating lifts and elevators, council rates, cleaning and maintenance, and other miscellaneous expenses. 

Investment Diversification

Commercial properties are an attractive way to diversify your investment. Rather than putting your money in one source, investing in different assets, including stocks, real estate, and bonds, is better. This lowers the risk of losing all your money if one of your assets suffers a loss. 

Attractive Tax Advantages

Commercial properties also come with significant tax advantages. When you invest in commercial property, you can claim tax deduction for the decline in value and a Capital Gains Tax deduction. Talking to an expert like VIC brokers to learn more about these benefits is best. 

Flexible Ownership Structures

When investing in commercial property, you can choose from flexible ownership structures, such as co-ownership (tenants in common), direct ownership, discretionary trusts, self-managed super funds (SMSFs), company structures, and more. The right option will depend on your budget, tax considerations, and long-term investment goals.

What Will a Good Commercial Property Buyer's Agent Do For You?

The hunt for a suitable commercial property is very tedious. You have numerous tax implications, ownership options, and agreements. On top of that, you also have to ensure that the property you are investing in has good profit potential. 

When you hire a good commercial property buyer’s agent, you can be assured that the commercial properties they will show you are excellent investment properties. They have the inside scoop and will help you find the best investment. 

Moreover, they are well-versed in the real estate market. They can decipher your real estate contracts and make all the paperwork easy. Their negotiation skills are also top-notch; rest assured, they will get you the best deal. 

Conclusion 

Investing in commercial property can be a rewarding path to building long-term wealth. From understanding property types to evaluating location, leases, and ownership structures, the key lies in making informed decisions at every step.

That’s where VIC Brokers comes in. VIC Brokers is your trusted companion in commercial property investment. When you hire us, you don’t have to worry about anything. We tailor a smart winning strategy to help you receive the best deal at the best price. So make your commercial dream a reality. Connect with us to learn more.