Steps to success in commercial real estate

Steps to success in commercial real estate

Buying and owning real estate is an exciting investment strategy that can be both satisfying and when done astutely, lucrative. The growth in developed and developing areas has increased the demand for more commercial and residential properties. Investing in property involves the consideration of several factors, from a finance and investment perspective. There are many benefits to purchasing a commercial property – most striking is the increased earning potential. Commercial properties can get as much as 12 per cent of the purchase price in annual returns. The following discusses the essential steps to success in commercial real estate.

Steps to success in commercial real estate

Pick your market wisely

Just like any other sector of business, your market matters a lot in commercial real estate. Consequently, look for a market that has great potential for clients and profit. Normally, the market for commercial real estate is always better in the cities than in the countryside. This is because city properties have higher demand, more business activity and command higher fees. Therefore, try to penetrate city or urban markets when engaging in commercial real estate. In addition to that, make sure to pick cities that have a strong market. This is because some cities thrive more than others.

Choose your approach

Two primary veins of investment that commercial real estate includes are direct and indirect investment:

1. Direct investment

Here, investors can become landlords through ownership of the property. People best suited for direct investment in CRE are those who either have a considerable amount of knowledge about the industry or who can employ firms that do

2. Indirect investment

This involves investment indirectly through the ownership of various market securities such as real estate investment trusts (REITs). These are shares that receive income from a variety of portfolios, exchange-traded funds, or by investing in companies that cater to the commercial real estate market, such as banks and realtors.

Determine your specialisation

For investors looking to move into the CRE arena, they will need to ensure they understand the three major marketplace sectors:

1. Retail

Due to the regular influx of new entrepreneurs and the high failure rate of new retail businesses, turnover in retail real estate is high. Location and amenities are vital. For example, traffic flow and parking, along with knowledge of the economic and demographic status. These must collectively be analysed alongside business sales volume. Consider who will be crossing your threshold, how will they interact with the retail space, will they buy the product, and will they return?

2. Office

From high-rise buildings to suburban office complexes, this category is extensive. Though much of the volume is in leasing, when a sale happens the return is generally high. A firm understanding of the needs of the lessee is necessary and can directly impact success.

3. Industrial

Industrial real estate is perhaps the most desirable commercial real estate class. Comprised of both leasing and sales components, this vein includes warehouses, manufacturing, high-tech and processing facilities. Due to the environmental, legal, and zoning issues involved, this speciality requires extensive expertise.

Find a solid property

Much of the success of your property depends on the initial deal made. It’s easy to overpay for a property or miss damages that mean costly repairs. Commercial buildings have unique problems that can cost thousands to fix. Issues with electrical work, the foundation, mould, the roof, and other significant fixes can also lead to lost money that you won’t make up through your annual returns.

Set the right rent prices

Learning the market will also help you charge appropriate rent prices. Properties priced too high will keep your units vacant, and those priced too low will either make the property appear cheap or have you losing out on profits. The best way to know what rent to charge is to assess similar properties in your area. Rent prices are incredibly competitive, so the price of a property with the same square footage and amenities should be very close to what you charge.

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