Which Type of Commercial Property Investment is Right for You?
Retail, office and a train station, Britomart has it all.
If you are looking to diversify your investment portfolio into commercial property, now is the time to do so. Auckland commercial properties are selling at yields not seen since the 2008 recession and savvy investors are looking to buy up before the market changes.
Should I Invest in Residential Property or Commercial Property in Auckland?
Many investors believe that residential property is a simpler investment than commercial property, however with the right property management systems in place your commercial property investments can out-perform residential investments for a similar outlay of time. Here are a few reasons you might want to consider a commercial property as your next investment;
Capital Growth - Commercial properties have greater potential for growth by redevelopment, reconfiguration and intensification. If you have been to Sylvia Park lately you will likely have noticed how areas that were previously carparks now host large office buildings and the retail part of the mall has been extended. This is a great example of how commercial property can continue to develop and grow over the years.
Commercial Leases favour Landlords - The cost of council rates, maintenance and insurance for a commercial property falls to the tenants, and generally only capital works are chargeable to the landlord. Tenants also usually pay the management fee. Commercial Leases are secured by either personal guarantees, bonds or bank bond guarantees. Commercial Lease terms are generally longer than residential leases, with regular rent reviews built in.
Rental Growth - Well located commercial properties can expect solid rental growth. Commercial Leases specify the type and frequency of rent review, and generally there are regular market rent reviews included that ensure rental growth.
Opportunities for Additional Income - Commercial properties have the added advantage of additional income streams. You can charge for parking, signage, storage, or install a billboard or EV charging stations for example.
CP Pro Tip: There are some very successful syndicates operating in Auckland and throughout New Zealand if you want an easy entry into the commercial property market.
Massive development potential has been unlocked at Sylvia Park, Auckland.
What Type of Commercial Property Should I Invest in?
There is a commercial property investment to suit each investor but for best results I recommend you aim for a portfolio that has more than one type of commercial property investment in different parts of Auckland. Commercial Property should also be considered a long term or multi-generational investment.
Retail
Retail commercial properties include dining, takeaways, convenience retail such as banks and superettes, as well as retail stores. This could entail anything from owning one shop in the local high street, to owning a large shopping mall. Retail properties are the most management heavy type of commercial property.
Invest in a Retail Property: If you don’t mind being hands on with your investment and working closely with your tenants.
Look for: Well positioned properties on main roads, and opportunities to add value or future development potential.
Medical
I have given medical property its own category because it is fast becoming the best performing type of commercial property in the Auckland market. Specialist hospitals, eye doctors, and plastic surgeons are popping up throughout Auckland and purpose-built medical facilities are being constructed to cater for the aging population. There is also growth in holistic and traditional medicine, GP practices and other specialists. Medical property has the added benefit of longer term leases due to the cost of specialist fitout. Medical properties also generally require lower levels of management as their property requirements are specific to their business and they prefer to manage operations themselves.
When to Invest in a Medical Property: You might pay a bit more for a specialist medical property but you will get the benefits of long term tenants and low management requirements.
Look for: Properties with busy medical practices, long leases and development potential. A property with two or more complementary businesses and other medical facilities in the area is also an advantage.
CP Pro Tip: Before purchasing a commercial property, spend time at the property to assess the traffic flows and performance of the businesses. Talk to the tenants to see if the property is providing for their current needs, what plans they have for the future and if there are any un-attended maintenance issues.
Ormiston Hospital, Auckland
Industrial
Industrial property is still a great performer in Auckland. Areas like Mt Wellington, the Airport and Highbrook have consistently high occupancy levels. Industrial property is a solid performer, with steady growth even in uncertain economic times. Often single tenant and simple buildings, industrial properties are a breeze to manage. Intensification often means that your industrial area may one day be re-zoned to a more intensive use, allowing for future development potential.
When to Invest in an Industrial Property: Industrial property remains a good investment through all seasons and economic conditions. If you have the resources it can be lucrative to invest in a vacant building in a good area, spend some money upgrading it to suit a new tenant and lease well. You will see immediate gains in value as well as long term security.
Look for: Properties with easy access to arterial routes, ports, or the airport. Good ratio of office to warehouse and well constructed buildings. Sufficient parking and easy access for trucks is also important. Look out for Asbestos. Many older industrial buildings in Auckland still have asbestos in the construction materials.
Office
Covid saw a massive shift from businesses working in traditional offices in the CBD to working from home or in satellite or shared offices. Auckland CBD, like many CBD’s around the world, have seen a marked decline in office occupancy rates, rents and demand. This trend will reverse in time and city offices will fill up again, but demand for suburban office options and shared working spaces will remain strong in the future.
When to Invest in an Office Building: In the current economic climate you can invest in an office building or unit with a low occupancy rate in the CBD for a good price, but you will need to be prepared for a potentially longer vacancy period and rental income lower than pre-covid levels. Good office space in suburban areas, especially as a part of a mixed-use development, (for example as part of a shopping centre), could be a safer investment. Shared office spaces are also good options if you want to invest in office property.
Look for: Sufficient parking for staff and clients. High standard of presentation including amenities and bathrooms. Other facilities in the area are also a bonus, such as gyms and cafes close by. If you do buy in a busy area it is important to be close to bus or train stations to make commuting easy for staff.
Mixed-Use
Mixed-use commercial properties are good investments due to their flexibility, the split risk aspect, and because the businesses can feed off each other by creating their own micro community. For example, if you have an office above a café, the café provides a place for the office workers to eat and get their morning coffee, and the café benefits from the business generated by the office staff and visitors.
When to Invest in a Mixed-Use Commercial Property: If you are looking at investing in commercial property, I strongly recommend you consider a property with a mixed-use. The advantages of having a split risk will support your properties performance through changing conditions, trends and economic climates.
Look for: Complementary uses in busy areas. Sufficient parking for customers. Being on transport routes or near bus or train stations is also beneficial.
Shared offices are seeing increasing demand
There is a lot to consider when investing in commercial property, and this article has only scratched the surface. If you have questions about commercial property investment or management in Auckland, email me today. My initial consultation is always free.
Regards,
Kirstin
