THE POTENTIAL OF COMMERCIAL PROPERTY INVESTMENTS

When most people think about or discuss investing in property it is most likely their thought process moves to residential real estate. However, experienced property investors often look outside of this market towards the commercial property sector.

The commercial property market is made up primarily of three sectors: Industrial, Retail and Office. This market has become more competitive in recent years as more investors are seeing the advantage of this class of property as an investment opportunity.  Savvy business owner are acquiring commercial premises either directly or through their Self-Managed Super Fund (SMSF).

For the inexperienced, the move from the residential property market into the commercial sphere can come with some reservations. Finding ways to balance opportunity with any potential risks can be daunting.

In this article I have tried to highlight some of the potential advantages and disadvantages to consider if you are thinking about moving your investment focus in part, or wholly into the commercial property market.

Advantages

• Rental returns are generally higher for
  commercial property and it is possible to achieve a rental return above 7% per
  annum.
• Leases are often for a much longer period of
  time.
• Rents can be reviewed at agreed times. The
  timing of these would normally be included in the lease agreement.
• Maintenance costs are often paid for by the
  tenant.
• The recent changes in the legislation as part of the May 9 2017 Budget do not impact on commercial properties.

Disadvantages

• Vacancies can often be longer between tenancies.
• The commercial property market can be affected by more external factors like unemployment, strength of the economy and consumer confidence.
• Financing the purchase of a commercial property may also be more difficult as banks may require a larger deposit than with a residential investment loan.

Currently, the Australian Taxation Office (ATO) allow the owner of any commercial property where construction commenced after 20th July 1982 to claim division 43 capital works deductions.

Division 43 Capital Works Claims are available for the depreciation of the structural component of the building. This claim is calculated from the original or historical construction costs and would be made up of the fixed, non-removable parts of the structure.

Division 40 Depreciating Assets Claims (plant and equipment) are also available to commercial property owners and are based on the effective life of the items in the property.

If you would like more information about the potential claims that may be associated with your commercial investment property please give our team a call today.