Owning Commercial Property - What Are The Benefits?

This guide covers the key benefits of commercial property ownership.

Rookie investor or not, you will certainly have read in the media about the solid returns to be gained from investing in commercial real estate. It’s a worthwhile move with a string of long-term benefits.

Adding commercial property investment to any mature portfolio for diversification makes good business sense. While you should seek assistance from a Financial Advisor, the Mackersy Property team are happy to answer any questions you may have.

Mackersy Property will look after many of these factors when considering investing in commercial property, but it's useful background for understanding how your investment opportunities work.

The information provided in this guide is of a general nature and should not be considered personal investment advice. Investing in commercial property, as with any investment, carries potential risk. Before investing, please seek advice from a financial advisor who can advise on your best options.

Excellent monthly returns potential

For solid cash flow, commercial property has the potential to provide excellent monthly returns. The value of the lease and a secure business tenant stands up well when compared with other forms of investment requiring a longer time frame to derive a return on your investment (ROI.)

Investors will have their own criteria for what constitutes a good return when buying commercial property. Enjoying the benefits of a rental income higher than the cost of ownership - known as positive gearing - is the cash flow property model that Mackersy Property investors routinely scope out for consideration.

Having all the facts to make an informed decision

A good commercial property investment provider will offer you commercial property investment opportunities in desirable locations with existing or potential tenants.

For the vital statistics to assist you in your decision-making, Mackersy Property incorporates a wealth of information on asset class, gross return projections, loan-to-value ratios, and weighted average lease terms (for multiple similar-use premises), along with comprehensive Information Memorandums available on request from their investment team.

Your expectations of the return on your capital investment in commercial property depend on your circumstances and preferences for passive cash flow. Tap into the expertise and knowledge of Mackersy Property’s investor relations team to gain as much insight as possible about the available options.

Capital growth potential

On top of cashflow positivity, your commercial property investment is going to be impacted by certain elements that will contribute to capital growth over time. The opportunity to get second and third bites of the cherry can be added to the benefits when looking at commercial property investments in the asset class and location that suit your needs.

At the risk of stating the obvious, capital growth on a commercial property is quite simply the difference between the current market value of the asset and its value at the time you acquired it. Recognising the high potential for capital growth will be something your provider can step you through.

Some useful information about policies and planning for an area can be found within the pages of local body reports like this from the Auckland Council’s Unitary Plan for Commercial Growth.

MP Diversified Poverty Bay Warehouse copy

Developing commercial areas

If your property investment is situated in a fledgling business park with yet-to-be-developed sites and a range of planned expansions, your commercial building asset has room to bear fruit from capital growth.

As neighbouring sites are developed and tenanted, the knock-on effect on your investment is likely to be positive. Moreover, you can expect to see not only an increase in your property value but also higher traffic volumes to neighbouring businesses. This has the potential to attract more customers for your tenants too. Everybody wins, as while they garner the opportunity to increase their bottom line, it also adds to your investment property's status and commercial appeal.

Although there’s no absolute crystal ball for investing (and certainly no guarantees of outcome) there’s a slew of intel, research, and insight from your provider to help you. The potential to harness these changes and action incremental increases in rental incomes in line with the current market conditions delivers another cashflow benefit.

Fit-out and maintenance

Unlike residential tenants, commercial tenants often arrange for and pay for the fit-out of premises as part of their lease agreement. This has enormous benefits for you as the building owner both in the short and long term.

When Kevin Costner was creating his cornfield baseball pitch in the movie “Field of Dreams” inspired by the famous words “if you build it they will come”, he saw the ghostly players arrive with only their bats and sporting genius. In today’s less obscure world of tenanting your commercial property, the bonuses are better than a home run.

Your own field of dreams starts with the property; then add in attracting appropriately qualified tenants, and typically seeing them arrange the fit-out as part of the lease agreement. This has the potential to increase the overall value and desirability of the property for current and future tenants.

At the time of the lease agreement, property maintenance and facilities management details can also be wholly covered or partially shared between the building owner and the tenants. This can significantly reduce costs to the owner and plays a compelling part in the ongoing cost-benefits of commercial property investment as a rewarding venture.

Tenant Stability

Careful selection of the right type of business and tenancy for a commercial property may lock in a long-term lessee and therefore mitigate the costly overheads involved in frequent tenant turnover.

A landlord’s obligations and those of commercial tenants are legislated by the Property Law Act 2007.

In 2021, following the impacts of Covid, a clause was inserted in the act to cover tenants unable to fully conduct business on their premises due to Covid lockdowns and restrictions. These emergency situations are thankfully rare, but it’s been a steep learning curve for commercial building investors and their criteria for securing robust tenancies.

Selecting a suitable tenant

The right type of business tenancy in a commercial building will dictate the terms for the servicing, and expected duration, of a lease.

The evaluation needed in selecting a stable long-term tenancy will involve an astute assessment of the business's nature, history, and ongoing maintenance requirements so the property continues to suit that tenant.

The team at Mackersy Property look after trying to interpret what the economy is doing, scrutinising the track record of the lease applicants, and carrying out the due diligence on the sum and substance of a potential tenant. These details indicate the longevity and staying power of the chosen tenant leasing the property. For example, a start-up retail fashion store does not have the same attributes or dynamics as a multi-disciplinary medical centre or online beauty product warehouse operation. Each will come with its limitations and merits in terms of staying power and strength of the lease.

A more reliable asset in an investment portfolio

Including a commercial property or properties in your investment portfolio delivers diversification and the strong potential for growth as compared with other types of investment. You’re not just investing in the reliability and stability of bricks and mortar, you’re also tangibly contributing to New Zealand businesses by providing a vital place from which they can successfully operate.

Mackersy Property has statistics and case studies to share on the feasibility of commercial property as a part of your real estate portfolio management strategy and would be delighted to connect with you to discuss the way forward. Reach out to us and let’s talk all things commercial property.