The Pros and Cons of Owning Commercial Real Estate in Sydney

The April 2017 Economic and Market Outlook Report published by Pitcher Partners shows that the economy is continuing to expand over the calendar year 2017 at a moderate pace (between 2.5% and 3.5%). With an expanding economy and a generally positive outlook for the country, investors are finding that investing in commercial real estate in Sydney is a wise move.

Commercial Property Investing

As with any investment, there are pros and cons associated with commercial property investing. Understanding those pros and cons can help you to make informed decisions about how to proceed. Let’s take a look.

Pros of Owning Commercial Real Estate in Sydney

  1. Higher Returns on Your Investment. It’s not uncommon to get returns of 8% to 12% gross rental yield on Sydney commercial properties. Compare these returns with 3.6%, which is the average rental return for residential properties in Australia’s capital cities, and you begin to see why commercial property investing is so attractive.
  2. Fewer Outgoings. With residential properties, landlords are usually responsible for paying rates such as council, water and body corporate. When you own commercial properties, however, the tenants are generally liable for these outgoings.
  3. Long Leases. Businesses need long-lasting stability in order for their businesses to thrive and grow. Therefore, commercial tenants tend to stay in one place for many years, unlike residential tenants, who can turn over every 6 to 12 months.
  4. Easier Capital. It’s more common for commercial real estate investors to pool their resources or participate in a syndicate for the purchase of property. This can make it financially easier to get into commercial real estate.

Cons of Owning Commercial Real Estate in Sydney

  1. Sensitivity to Economic Conditions. People always need somewhere to live, but not all businesses thrive in less-than-ideal economic conditions. In a recession, demand for commercial space falls, and commercial real estate owners may find themselves struggling to avoid vacancies.
  2. Longer Vacancies. It’s true that tenants stay for a long time, but once you have a vacancy, it may take a while to fill it. In order to cover your costs during vacancies, you need to build a reserve fund. Hopefully, you won’t have to use that reserve, but be prepared.

Commercial Property Advice

If you’re looking into investing in commercial real estate in Sydney, start by creating a plan. Research the area, and learn about relative property values and which areas are attracting businesses.

Here at Nutshell, we help investors to find the ideal property to invest in, and once you’ve acquired it, we can help you to manage and maintain it. We have our fingers on the pulse of Sydney’s commercial real estate industry, and we’d love to share our expertise with you.

Reach out to us at Nutshell. Let’s connect!

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