The nature of commercial real estate investment is quite uncertain. The rapidly changing figures in this domain can drastically change the course of the whole paradigm in a matter of a few days. Timely decision making is the key to prevail in this domain.
As an investor, when you think about investing in a commercial real estate, there are basically three options available for you as follows:
- Shops in shopping malls
- Corporate offices
Interestingly, in residential real estate, you can easily get the idea of past, current, and estimate the future worth of any building or house by simply comparing it with buildings or houses adjacent to it or located in a similar area with similar fashion. However, this is not the case in the commercial real estate sector. In the commercial sector, two buildings adjacent to each other can have a completely different market value, different pros & cons, and can carry different risks with them which are independent of each other. Today, we are going to discuss some of the top secrets which can make your commercial investment a very successful one, if you take care of these aspects consciously.
Regardless of which form of an investment you are looking for, either it’s commercial or residential, the locality of your investment should be topnotch. It doesn’t mean we are suggesting you invest in premium locations only but the chosen option must have great potential for the future at least if not now. Investments that are not made in the premium or future premium locations usually suffer. Always consider the following questions before finalizing any commercial real estate investment.
- Is your shop or building is easily findable by patrons?
- How much vehicular traffic is there in the area?
- How much pedestrian traffic is there in the area?
2. Rental Worth
If your commercial investment is not returning you a minimum of 5 to 7% annually, you should not consider it successful. Rental income is a major aspect of any commercial investment. For managed commercial rentals such as malls and offices, do not get deceived by the guaranteed rental prospects. They are usually limited to a couple of years which is insufficient to make any huge difference. To make any major impact, they should be for 5 years at least. Therefore, it’s best to evaluate the rental worth of your property yourself.
Since you are looking to rent your property out. You must be well aware of which type of businesspersons will be the potential tenants of your property. It’s always good to have high-end tenants such as big corporates, retail brands, banks, and other multinationals to have your tenant. They not only add value to your property but also pay a handsome amount in terms of the monthly rent. Such giants hardly ever default which means you can get a healthy and steady source of income by having them as your tenants. In case your commercial property is going to attract lower or middle-class tenants, it will be classified as such and will lose value over time. Also, it’s quite possible you can face some defaults and other issues that will hurt your flow of rental income.
Community essentially means the neighborhood your investment is surrounded by. Always consider the following three points to understand the community for your successful investment.
- Household income
- Purchasing patterns
You’ve to carefully analyze these aspects in order to decide if your property is a good fit for any neighborhood or it’s a misfit. For instance, a wholesale shop of food items might seem like good business in any neighborhood but a lower-middle-class population may not be able to afford to buy in bulk.
5. Planned Commercial Areas
Town planners these days plan commercial sectors in such a way that commercial activities develop and endeavor to sustain the neighborhood. This includes low to high-end commercial activities, dedicated areas for malls plazas, and corporate offices. This planning is useful but at times, it could be misleading as well. In some cases, this planning left the independent commercial units to the dedicated commercial sector to decide their fate.
With the passage of time, the areas develop as per the vision of developers. The commercial prices which were supposed to be similar will slowly start to variate. The reason behind this variation is that the centralized dedicated commercial sectors attract the high-end tenant, while other independent units entertain the mid and low-end commercial activities.
The stability of the trend is also a very important factor to make your commercial investment successful. Comparatively, the greater risk associated with areas where the trend has not been established yet. Therefore, it’s vital to catch the trend in its very initial stage else you may not be able to capitalize on the huge capital gains.
For instance, if we look at Gulshan-e-Maymar Karachi, the investors who invested in Maymar’s commercial property in 2019 are getting almost 100% return of their investment as of today, since the prices are doubled now from what it was last year. The main reason behind this progress is that Karachi severely lacks by birth commercial properties. This means all the available commercial properties in the city are residential converted to commercial properties. Therefore, investors and genuine buyers are inclining towards Maymar as it offers genuinely built commercial properties. A similar trend has also been observed in DHA City Karachi.
Amenities in a commercial space adds more value to your investment. Availability of car parking, centrally air-conditioned, and heavy flow of foot traffic are some of the aspects that can be beneficial for your commercial investment.
The presence of amenities such as parking space in corporate offices or a food court in a shopping mall will ultimately enhance the marketability. Therefore, it’s highly recommended to invest in areas that provide such amenities.
The commercial investment in real estate will upgrade your overall portfolio. However, the decision must be made after thorough analysis and market research. You should carefully take all the above-mentioned factors into account before finalizing your decision. You can also take help from any professional real estate consultant including www.faizanbarai.com for the best and customized advice as per your preference. Even if this process ends up taking more time, it’s really worth it.
Patience is necessary while making a commercial real estate investment. The reason behind mentioning this explicitly is that everything here takes a longer time. Construction, searching for a suitable tenant, and months-long due diligence. On the other hand, the leases are also longer and gains are comparatively higher which makes all this patience worthwhile.