Owning commercial property is different to the residential property market. There is a fair amount of risk involved that you should be aware of before diving into the commercial property market. However, if you gain a good grasp of all of these factors, then you’ll be on the right footing to acquire your first commercial property.
Market Drivers for Commercial Property
As simple economics would dictate, the primary driver for property growth is demand that needs to be met with supply. However, commercial property differs from the residential market in that there are additional economic factors at play rather than merely population growth creating demand in geographic locations. People will always need somewhere to live, but creating places for them to work is not as straightforward.
In order for a commercial property to be a successful investment, the owner of the property is also relying on a strong local, national, and even international economy. Anytime the economy is suffering, be warned of the impact this has on the profitability of your commercial property.
How the Economy Effects Demand for Commercial Property
When the economy starts to grow, it is the transport companies that experience the benefits first. This is because there is an increased demand for materials for manufacture, and then completed goods require exporting or importing. Increased business leads to more earnings, more jobs, and more demand for office space as more jobs are created to support the growing economy. Then, as the economy continues to grow, there is an increased demand for warehouse space, then retail, followed by office, and it goes through the cycle.
So, if you see that the economic conditions are right, and you’d like to invest in some commercial property, then contact us to do the conveyancing works for you, and we’ll be able to advise you on the other factors involved in acquiring some commercial property.
There are other factors that also influence commercial property demand in Australia:
- Interest Rates – The Reserve Bank of Australia sets interest rates as a way to manage inflation. Increasing the rate slows the demand for commercial property.
- Infrastructure – More so than residential properties, commercial properties rely on good transportation networks and also may need additional infrastructure in place such as sewerage or high-speed internet. The good news, though, is that often commercial properties can be placed where no one wants to live, such as at the intersections of noisy freeways.
- Population Growth – The demand for commercial properties is linked to the amount of residential properties in the area, and that’s because people don’t want to travel too far to get to work. In other words, even if the economy is booming, don’t place a commercial property too far from the population centres.
- Retail Spending – There are a lot of factors involved in a healthy economy, but increased disposable income often leads to consumers buying more products, which in turn leads to the need for more shops. Grocery stores and supermarkets are usually required first, and then restaurants and entertainment venues (including cafes and pubs), then specialty shops and support services to serve the community, and then office-based businesses will want to move in too.
If you see an up and coming area with a booming economy, then it may be a good time to invest in some commercial property. However, make sure you are fully aware of the risks involved and know that owning commercial property is more volatile than the residential market. That being said, if you find the right commercial property in the right circumstances, it could be very profitable.