INVESTING
Investing In Office Space
5 reasons why it ’ s a good investment bet
BY MIKE WALTERS
Many financial gurus will tell you property is a good way to diversify an income portfolio and will be one of the foundations of any income-generating portfolio . But why is commercial property - specifically office space - a good investment bet ? Here are five reasons why I believe investing in office space in this market makes sound investment sense .
1Investment stability Markets around the world have been doing all sorts of dips , dives and surges in recent years , with the stock market being particularly volatile . Investors these days are looking for tangible assets that are less volatile than the stock market , but which also provide yield and capital appreciation . Achieving stability is possible through investment in commercial real estate , particularly as it is a long-term investment option .
2Smart time to buy Interest rates are bound to go up over the next 12 months , but they are still at relatively low levels . Added to this , pricing in the office space market still offers investors good value for money . Small to medium business owners are gravitating towards owning their own office space – a clear precursor to the market turning , however , a number of external variables can delay or accelerate the upturn .
3Rental income and capital returns Aside from diversifying a real estate portfolio , office space investment is a good way to earn high rental income as well as solid capital appreciation . Commercial properties tend to generate more rental income compared to residential properties – roughly 8 % -13% yield compared to a 5 % -7% yield from residential investments . While commercial properties
require larger investment amounts than residential properties , they are often said to be a more prudent real estate investment if the buyer has the necessary equity available .
4Leases and tenants Leases in the commercial space are generally longer than residential ones , typically spanning three to five year periods . It is not inconceivable that a commercial tenant can be in place for 10 years , which will be the same period as the commercial bond term . In commercial property , there is also a higher chance of lease renewals than with residential properties , which usually have higher tenant turnover rates . Commercial tenants tend to take better care of the property when it comes to reporting problems and general maintenance etc , as it houses their businesses and is therefore a reflection on their company .
5Management The management and hassle factors involved in owning a commercial property are considerably less than residential properties . Commercial properties are generally much less management intensive than residential real estate due to the lower turnover of tenants . Commercial property owners also have a wider selection of managing companies to choose from to assist them in the oversight of their asset .
There is a place for both residential and commercial properties within a portfolio . More and more residential investors are starting to make the natural progression to commercial real estate due to the acceleration in growth these types of investment offer .
RESOURCES
Renprop Commercial
36 JULY 2016 SA Real Estate Investor www . reimag . co . za