Buying or building commercial property as an investment can be a great strategy, particularly for those looking for a consistent stream of income.
In the article below, we look at the return of investment of commercial and industrial properties and then take a look at how you can start investing.
One of the strengths of commercial properties as investments is their high rental return. While residential properties return only 3.4% of their overall value per year, industrial properties return about 8.1% of their total value yearly.
That’s a huge difference in a reliable stream of income.
So what’s the catch? There are a few. Let’s go through them:
Rental Income Risks
As always, a greater return indicates a greater risk. In regards to industrial properties & buildings, the high rental return relies on finding a reliable renter.
Residential properties are generally filled by tenants extremely quickly, but it can take months to find an appropriate tenant for a warehouse or factory space.
In any town or city, more space is allocated to residential building than industrial building. Finding a property to build on can be more difficult, and the council will likely hold you to tighter regulations before giving you building approval.
However, there is some goods news here. If you’re working with a trusted and experienced builder, they will understand regulations like the back of their hand. A quick phone call will give you an idea of what you can and cannot do. In these situations, your builder is your most important contact.
More good news: fewer people are building industrial properties than residential properties. This means you can often get industrial land for a better price, particularly if you choose your location strategically.
More Specific Needs
When building an industrial property, you’ll need to consider a number of requirements a tenant is likely to have:
- Access to highways.
- Space for heavy machinery.
- Appropriately large access points.
- Access to industrial utilities.
The location of your building is often extremely important, because location often provides value to the business operating out of it.
You need to make business as easy as possible to conduct from your space, so you will ideally find a place close to suppliers and other important networks.
Industrial properties tend to increase in value slower and steadier than residential properties.
Whilst residential properties have greater potential for capital growth, they also have a greater risk of going backwards.
How Much Does It Cost to Build An Industrial Building?
The average cost to build an industrial building is $166,065 AUD for the engineering, fabrication and installation of the building.
Site preparation, civil works, utilities etc are all additional costs.
For large factories over $400m2, the price can range from $100,000 – $400,000.
Rental return of residential vs. industrial properties: Property Observer)