How to Spot a Great Commercial Property Investment Opportunity
With many forecasting a post-COVID boom on the horizon for NZ, now isn't a bad time to invest in real commercial estate if you know what you're looking for.
Now that New Zealand is in Level 1, there’s an enormous movement across multiple industries, including commercial property. If you’re looking for commercial property for sale, it pays to know how the market has changed and which elements remain important when it comes to choosing your next investment.
Even before the global COVID-19 crisis began, there was already a wide-reaching shift occurring across property markets where more investors pivoted towards commercial property in search of higher profits. Additionally, with the enormous amount of growth that many are forecasting for NZ, now is a great time to get in on the ground floor, so to speak.
It is understandable, however, that not every property investor knows what to look for in a commercial space, especially if you’re new to the market or are transitioning from residential property investment. So, how do you spot a great commercial property investment opportunity?
First things first: know exactly what you’re looking for
Not all commercial properties are the same. The truth is quite different; there is an enormous difference between retail space, office space, warehouse space, or any of the other many types of commercial property. Knowing the difference between these will help you narrow your options. Some commercial property investments require some work to get them ready for tenants, while others may not. Industrial spaces, for example, also require more ongoing maintenance than their counterparts, as these tend to see a lot more wear and tear over time.
Different types of commercial property can also produce significantly different income streams. For example, warehouse space tends to be more dependable and consistent, generating a small profit at a constant pace. Other property types may provide the inverse—larger profit margins, but higher maintenance costs, and more chance of sporadic income.
Review existing or potential tenants
This leads us to the next major point—tenants. Opting for property that’s already tenanted is generally preferable, as your investment will come with guaranteed income. This is especially ideal if the tenant has signed a lease. Commercial leases can be quite long, lasting around a decade in many cases.
Additionally, different commercial properties attract different tenants, so it’s important to understand what sort of relationship you will have with tenants. Retail and hospitality tenants, for example, are much more prone to turnover than tenants occupying office space. On the other hand, well-established corporations and government services tend to be the most sought after, and you’ll hear these referred to as ‘blue-chip’ tenants.
Trustworthy tenants aren’t just good for you in terms of prospective income; they also reassure the bank that any loans you take on will pay off, which will help you invest in the first place.
Choose a good location
Location is the next biggest thing to consider. Some might even say that a good location is more important than finding space that is tenanted. After all, if you find a prime location, there could well be high demand to operate businesses there, depending on what sort of property it is.
The general rule of thumb is to think critically about the placement of a given property. If it’s on a long stretch of empty road, consider whether you would stop there yourself. Some locations may make sense for some businesses, but others, like cafés, depend heavily on good thoroughfare and foot traffic. It’s best to consider the best interests of your tenants when thinking about location—if they aren’t successful, you won’t be either.
In saying that, remember to consider a location’s potential. Locations that may not be desirable now could become more valuable later. A little forethought can pay off hugely, but it’s best to be as sure of your assessment as you can be.
Invest in real estate with JLL today
Here at JLL, we know what it takes to invest in real estate in New Zealand’s commercial property market, and we’re here to help. The above is just a sample of the insight we can provide you, and it pays to know as much as you can about your potential investments.
Property investments are major financial decisions. If you want to talk it through with a reliable advisor, give JLL a call today. We’re an industry cornerstone for a reason.