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