Investing In Melbourne Commercial Property: A Smart Move?

When it comes to property investment in Australia, residential properties have traditionally been the go-to choice for many. In Melbourne, this trend holds strong, thanks to the city’s robust and consistently performing market. But have you ever considered diversifying your portfolio with commercial property? Let’s explore why this could be a great move for you.

Why Consider Commercial Property?

Commercial property isn’t just for the big players; it’s a viable option for serious investors looking for high rewards. Here are some compelling reasons to invest in Melbourne’s commercial property market:
  • Higher Yields: Commercial properties can offer yields of 5% to 7% with the right purchase in an optimal location.
  • Tenant-Borne Costs: Commercial tenants typically cover most outgoing costs, including rates, insurance, maintenance, and body corporate fees. This can significantly reduce your expenses.
  • Tenant Improvements: Tenants often enhance the property to suit their business needs, thereby increasing its value.
  • Longer Leases: Commercial leases range from two to twenty years, compared to the typical one-year residential lease. Longer leases mean more stability for you as an investor.
  • Rent Increases: Annual rent increases are usually stipulated in commercial leases, ensuring your investment income grows to match or exceed inflation.
  • Capital Gains: The property’s value can increase as its rent does, especially if you secure a high-paying tenant on a long lease or add value to the property post-purchase.

Risks and Drawbacks

While commercial property investments can be highly rewarding, they do come with their own set of risks. It’s essential to be aware of these to make informed decisions:
  • Vacancy Risk: The vacancy rate for Melbourne CBD offices is significantly higher than for residential properties. Finding a commercial tenant can take longer.
  • Economic Sensitivity: The commercial market is more sensitive to economic changes and interest rate fluctuations, which can affect vacancy rates and property values.
  • Value Fluctuation: The property’s value is tied to its rental income and the quality of the tenant. A vacancy or lower quality tenant can decrease both rent and property value.
  • Higher Deposit Requirements: Purchasing commercial property often requires a 30% to 50% deposit compared to 10% to 20% for residential properties.

Tips for Finding Quality Commercial Property

If you’re new to commercial property investment, understanding what makes a quality asset is crucial. Here are some key factors to consider:
  • Location: Proximity to transport links, amenities, and residential areas is essential. Depending on the type of investment, other factors may also come into play.
  • Condition: Avoid high repair and fit-out costs by choosing properties in good condition that are ready for immediate use.
  • Zoning: Verify with local authorities the permissible uses of the building.
  • Versatility: Properties that can accommodate various businesses are less likely to face long vacancy periods.
While commercial property investments come with higher risks, they also offer potentially higher rewards. Thorough research and a deep understanding of the commercial property market are vital. For expert advice and guidance, contact the Create Real Estate commercial team. With years of experience in selling commercial property in Melbourne, we are well-equipped to help you make informed investment decisions.

Ready to Invest?

If you’re considering investing in Melbourne commercial property, check out our latest listings or get in touch with us through our contact form. We’re here to help you every step of the way.