Breaking down commercial property
COMMERCIAL property is real estate that is used for business activities. Commercial property usually refers to buildings that house businesses, but can also refer to l and used to generate a pro it, as well as large residential rental properties.
The designation of a property as a commercial property has implications for how it is inanced, how it is taxed, and how the laws are applied to it.
Commercial property includes malls, grocery stores, of ices, industrial estates, manufacturing shops and more. The performance of commercial property including sales prices, new building rates, and occupancy rates— is often used as a measure for business activity in a given region or economy.
Investing in commercial property vs. residential property
Commercial property has traditionally been seen as a sound investment. Initial investment costs for the building and costs associated with customization for tenants are higher than residential real estate. However, overall returns can be higher, and some common headaches that come with residential tenants aren’t present when dealing with a company and clear leases.
Commercial property investors can also utilise the triple net lease, whereby expenses such as real estate taxes, building insurance and maintenance are borne by the company leasing the premises. This advantage is not available to residential real estate investors.
In addition to favourable leasing terms, commercial property tends to bene it from more straightforward pricing. A residential property investor must to look at a number of factors, including the emotional appeal of a property to prospective tenants. In contrast, a commercial property investor can rely on theinc ome s t atement t hat s hows t he value of current leases, which can then be compared against the capitalisation rate of other commercial property in the area.