I am posting some basic information that I hope will be of some use in order to get more activity in this section of Property Chat. Please note that the information supplied is as a basic guide only and you should always undertake your own inquiries as to the accuracy of the information supplied. Please feel free to post any feedback on your experiences or any comments that you have. What is Commercial Real Estate? Commercial real estate is property that is generally used for business activities. Whilst commercial real estate covers a broad spectrum, it generally falls into 3 sectors; - retail, - industrial, and - office Examples are office spaces, retail shops and shopping centre’s, hotels, farms, industrial warehouses and estates and sometimes vacant land. Why Invest in Commercial Real Estate? Whilst there are similarities to residential real estate, there are several reasons to invest in commercial real estate. In no particular order: Diversification of property portfolio Many property investors choose to remain with residential property as they believe that it is a tried and true vehicle to wealth creation. However commercial real estate can offer an alternative viable investment solution and has been an attractive form of investment with the advent of the self managed superannuation fund. Better yields As a rule, commercial real estate offers a higher rate of return which ranges between 6-9%, dependent on the location of the property, the length of the lease and the quality of the tenant. Potential tax benefits Depending on your financial circumstances, there are several potential tax benefits available when purchasing or owning commercial property. As with all advice, my recommendation is to speak with your accountant or financial planner who is across all your circumstances before making any investment decisions. Landlord favourable lease terms Commercial real estate property leases often are more detailed and can include clauses that are not permitted in a residential lease. Clauses such as tenant paid refurbishments during the lease period, restoring the premises at the end of the lease and so on. Where the average residential lease only allows a 4 week bond that cannot be increased in line with the any future rental increases, commercial leases are not restricted in the same way. Bank guarantees average 3 months with amounts of 6 and 12 months becoming more common especially in offices and may be increased at the same time as the rent Net income typically is higher than residential. Primarily this is due to the fact that quite often commercial leases pass the full responsibility for the cost of the outgoings direct to the tenant. Increased security through longer term leases. Whilst the average residential lease is 6-12 months, typically commercial leases are longer (3, 5 or 10 year’s) with fixed or CPI annual increases. The longer terms can assist in mitigating economic fluctuations that affects income. Why NOT TO Invest in Commercial Real Estate? Lack of knowledge Unlike residential real estate, commercial real estate is often a higher yielding but low-growth investment. It can also be harder for a property investor to understand what constitutes a good quality commercial tenancy and what is required to attract and maintain a quality commercial tenant. Historical and general research information is not as detailed or prolific as that of residential property and sourcing accurate and up to date information can be difficult. Inability to afford higher expenditure for the property Maintenance and running costs are often higher than residential property. Items generally not present in a residential property can be standard in commercial properties. For example water cooling towers, lifts, escalators and the like. Financing When purchasing commercial property, there is significantly more equity required and deposits are often higher than residential property. Amounts of 30-50% of the purchase price are not unheard of. You should be aware if lending the money for a commercial property purchase, interest rates are often higher as well. Higher Vacancy Periods How often have you seen a commercial property vacant for month’s (even years) in an economic down turn? Lease incentives such as rent free periods and capital contributions to assist in attaining tenants need to be taken into consideration both for a new tenant and to maintain an existing.