What is Retail Property Investment?
The term “retail property” refers to property that is leased or rented out for retail use. This can stretch from traditional retail shopfronts to mixed-use, malls, strip malls and can include the type of property typically found in these locations including ‘retail food’ like cafes, takeaways etc.
Retail properties are often acquired by super & pension funds, sovereign wealth funds, and high net worth individuals due to their stable income-generating abilities.
Investments in retail property are generally long-term investments with leases in Australia typically around 3-5 years but with options to extend, roll over and can stretch out to 10-15 years in some circumstances. Retail properties are typically valued on a cash flow basis, which measures net income generated by the asset over a 12-month period - referred to as yield and are critical to measure everything from cost to expense and loan ratios, through to return on capital.
You should also take into consideration how passive the investment is going to be for you. Managing a commercial property takes time and effort even if you have a property manager, there is still a level of active management and involvement.
Is a pub a retail property investment?
Yes, you can buy a pub and relive your glory days when you were pulling pints in uni. In all seriousness, pubs are a popular type of retail property that provide a varied set of commercial opportunities from bars and dining, accommodation, live entertainment and gaming. These spaces also serve as an important social hub for the community and they help promote local businesses on a national scale by attracting more customers to the neighborhood.
A pub can be a great investment for any real estate investor because of its high resale value and the multitude of ways in which it can be used. Pubs generally have a lower turnover rate, which means that they might not offer the highest return on investment, but it is still an excellent choice for any investor looking for something that is more durable and versatile.
Why Invest in Retail Properties?
The retail property market has been a reliable investment opportunity for decades and is still a growing trend, which has made it an accessible way to invest. It's important to learn the basics of investing in the retail property market before getting started to make sure you can grow your portfolio.
One of the many reasons that people invest in retail property is because it offers a high rate of return on investments as opposed to other types of real estate investment, typically residential. There are other benefits (e.g length of leases) that come with investing in retail property, but this will depend on what the investor is seeking from their investment and the type of retail property(s) they seek to add to their portfolio.
Where to Start With Retail Property?
Many people today are interested in purchasing retail properties that provide a better return on investment than alternatives such as residential or diversifying away from other types of commercial, residential or other investments.
The value of these properties has continued to increase over the last few years in line with the commercial property market and can be expected to continue to do so for the foreseeable future.
You can begin your search for retail investment property by browsing the CommercialReady property platform, contacting real estate agents in the local area, or using a commercial broker - in much the same way you would for any other level of due diligence on a purchase.
Once you’ve found some prospective listings that you are interested in, you’ll then want to compile a property report to analyze information on the building’s square footage, zoning classification, lease rate, and occupancy rate etc. to gain a better understanding of the property’s investment potential.
5 Tips to Get Your Commercial Property Investment off the Ground
- It is important to find a business type that is as stable as possible for your risk appetite.
- Taking the time to source a reliable and secure tenant reduces risk.
- When considering purchasing a property, it is always best to have an exit strategy for when you decide to sell. This ensures that you receive the maximum return on your investment.
- Seek professional property management to protect and manage your property investments.
- With commercial real estate investing, it's important to consider all costs that will/can arise throughout ownership.
What are the Disadvantages of Buying a Retail Property?
Buying a retail property can be a highly rewarding investment. These investments tend to increase in value over time and have the added benefit of rental yield. Like anything, there are risks that need to be taken into account.
The risks: It's possible for the property to lose value or become less profitable. A market downturn or business cycle can also lead to the property being worth less than the amount you paid for it and you need to consider the business type and viability within these factors. For example, specialty retail may be harder to fill than multi-purpose property in a downturn or unexpected vacancy.
The expenses: Selling (and buying) your property can be an expensive endeavor, particularly if it takes a long time to find a buyer. You'll have to pay commissions, closing costs, and other fees that come into play when trying to sell. Not to mention tax on any gains you make.
The commitment: longer terms of the lease on commercial properties, costs associated with purchase and sale, and slower capital appreciation due to a number of factors (tax, economy, business cycle) mean that these investments should be a medium-long term investment
8 Important Factors To Consider When Investing in Retail Properties
When investing in retail properties it is important to consider factors such as accessibility, supply and demand, proximity to competitors, and more, when making a decision. These factors can have a big impact on the success of your investment in the long-term.
8 key factors to consider:
- Location - nothing determines the price better than location.
- Size of the retail space - can you get more out of it on a yield per square meter.
- Supply & Demand in the area - is it established, growing, declining?
- Surrounding amenities that may support your investment - and are there plans for these to change?
- The target market of the retail space - factor in your target vs. the demographic.
- Competition in the area - for both the tenants and your property.
- Your investment budget - what you can afford, your margins of safety.
- Yield - when all is said and done what does your property generate?
Final Thoughts
In today’s world, retail property is a popular investment type as there are a myriad of different ways to invest in this space and it is highly scalable; which means that you can find something that suits your ideal portfolio and budget and potentially reap the rewards of higher than residential yields, and capital growth.
See all the available retail properties available on Commerical Ready
