Real Estate Investor Magazine South Africa November 2014 | Page 50

OFFICE BY MIKE WALTERS Investing In Office Space 5 reasons why it’s a good investment bet M any financial gurus will tell you that property is a good way to diversify an income portfolio and should 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 that investing in office space in this market makes sound investment sense. 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. 1. Investment stability Markets around the world have been doing all sorts of dips, dives and surges in recent years, with the stock marketing 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. 2. Smart 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 could delay or accelerate the upturn. 5. Management 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. 3. Rental 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 50 4. Leases 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 would 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. 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. November 2014 SA Real Estate Investor RESOURCES Renprop Commercial www.reimag.co.za