In the dynamic realm of investment, fear often takes centre stage. This sentiment holds true for the commercial real estate market as well. Amidst rising interest rates, escalating living costs, and forecasts of diminishing office space demand, one might question: Is investing in commercial property still viable? We believe it is. By divorcing emotion from investment decisions and embracing a strategic perspective, the potential rewards of commercial property investment remain substantial.
Embracing the Long-Term Outlook
Commercial real estate investment is a commitment to the long haul (think 10 – 25 years). Investors looking for quick wins should look elsewhere. This asset class demands a level-headed approach, one that is prepared to ride through the cyclical waves that inevitably arise.
The Office Space Conundrum
Some of the current hesitance in commercial investment, particularly office space, stems from the rather slow and gradual return to work. In an interview on the Money Puzzle Podcast, Chris Bedingfield of Quay Global Investors provides an intriguing insight. He believes there are peak days when offices will be full and posits that businesses will eventually require employees to return to the office as they realise the inefficiency of renting vacant spaces. Bedingfield differentiates between client-facing staff who need to be at the coal face and back-office staff, who can usually work from anywhere. Furthermore, he highlights the diverse range of commercial real estate landscape opportunities (it’s not just office space), with industrial properties proving less susceptible to current occupancy fluctuations.
Foundations of Commercial Real Estate Investment
Prospective investors should grasp several key fundamentals and complete their due diligence before entering the commercial property market.
Barriers to entry are lower than you think. With the right investment partner, you can enter the market. Here at Australian Securities, you can invest directly in commercial real estate through our Property Investment Fund for a minimum of $100,000.
It’s easier with an investment manager. An investment manager can streamline the intricate aspects of this investment type, leveraging their expertise to expedite the process.
Scrutiny of property history, location data, local demand, and tenant lease durations is essential, while longer leases provide enhanced protection against market fluctuations. An experienced investment manager will streamline the intricate aspects of this investment type, leveraging their expertise to deliver better opportunities than you may find when going it alone.
Population Growth as a Driving Force
Population growth fuels increased business activity, bolstering commercial space demand. This correlation underscores the potential for steady returns within this sector.
Beyond Capital Gains
Commercial real estate investments offer more than capital growth. Noteworthy advantages include:
- superior monthly rental income compared to residential properties
- inflation resilience over the long term
- stability stemming from extended lease terms
- tenants cover the outgoings, such as water usage, council rates, repairs and maintenance (depending on their lease agreement)
- generous tax benefits with substantial depreciation allowances.
Exploring Diverse Options
It’s easy to forget that real estate investment isn’t just about commercial office space. Sectors such as retail, driven by essential consumer needs, demonstrate resilience. Industrial properties, healthcare, and wellness establishments also offer promising opportunities, given their immunity to work-from-home trends and a constant demand – the population’s physical and mental health does not consider finances or interest rates.
The challenge with pooled and open funds
Pooled funds provide convenience, but their exposure to market fluctuations warrants consideration. Recent negative sentiment and inflation impacts have triggered panic within the pooled fund landscape. Many funds are imposing limitations on redemption options or offering extended redemption periods.
For investors of the Charter Hall Direct PFA Fund, a run on the five-year liquidity event last August has seen the fund desperately trying to sell assets to meet obligations. Unfortunately, they have been unable to sell buildings at fair prices to realise the necessary cash. The result? Charter Hall has limited redemptions to 25%.
Similarly, for investors of the unlisted and pooled Centura 25 Grenfell Street Fund, tenanting issues have meant the suspension of distributions after a major tenant moved out, leaving five of its six floors vacant. Centuria is being forced to refurbish the space in order to win new tenants.
Transparency as a Pillar
Selecting a commercial property investment necessitates in-depth knowledge beyond basic location details. Tenant information, lease durations, fund specifics, and contingency plans in response to market fluctuations are critical factors demanding clarity.
The Australian Securities Advantage
Australian Securities’ long history and resilience over almost a century, including multiple market crashes, provide a distinct advantage. Drawing from decades of experience, our investment funds are designed to withstand market volatility, delivering stability amidst uncertainty.
Elevated Investment Opportunity
For Australian investors seeking a transparent, secure, and stable commercial real estate investment avenue that transcends the limitations of standard pooled funds, the Australian Securities Property Investment Fund is an exceptional choice.
In the intricate landscape of commercial real estate investment, wisdom trumps fear. By aligning strategic thinking with well-founded insights, Australian investors can harness the potential of this sector. Australian Securities emerges as a beacon, offering a path towards stability and growth in an ever-evolving market.
Still not sure…
Call us on 1300 275 275 to talk to one of our Investment Managers or Investment Executives. We prioritise direct communication and personalised support for our clients.
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