Although all investments come with risks, we would like to highlight how commercial property investment can offer unique opportunities compared to residential property investment. Here are 10 things we love about commercial property trusts.
- Higher income yields – Commercial properties generally show higher returns when compared to residential property. According to realcommercial.com.au, commercial properties offer rental yields between 5 and 12 per cent. This is much higher than residential properties which have an average rental yield of 4.1 per cent according to CoreLogic.
- Regular Passive Income – Commercial property trusts generally pay regular distributions to investors, often either monthly or quarterly. Many investors use this income to supplement their main source of income in retirement.
- Tax Advantages – Commercial property investors may be eligible for certain tax benefits such as depreciation and interest deductions. Commercial property owners can claim depreciation for capital works and plant and equipment.
- Potential for Capital Growth – Based on income and yield growth potential commercial properties located in high-demand areas can experience capital appreciation over time.
- Longer Leases – Whilst residential properties are typically held on short leases (often 12 months), commercial properties typically attract longer lease terms between three and fifteen years, providing consistent and predictable income streams over time.
- Reduced Capital Volatility – Commercial properties generally exhibit lower unit pricing volatility than the sharemarket, which fluctuates daily.
- Well known tenants – With well-known key anchor tenants such as: Bunnings, Coles, Woolworths and Government Tenants, this provides further certainty over the income available for distributions.
- Diversification – by investing across different asset classes and geographic locations, investors may be able to diversify their portfolio and potentially reduce investment risk.
- Inflation Hedge – Rents from tenants generally go up annually by CPI or a fixed amount each year, which helps reduce the impact of inflation.
- Access to Properties out of reach and Professional Management – the ability to own commercial property within a commercial property trust, allows investors to hold part of a larger asset previously out of reach and to benefit from professional management which benefits the time poor investor and those who don’t want the hassle of managing the properties themselves.
Before investing in commercial property trusts, please consult with your investment adviser and also consider the investment risks such as: vacancy, unforeseen capital expenditure, tenant performance and other factors.
If you are looking to invest in commercial property trust and would like to learn more, or have any questions, feel free to reach out to us!
