Before we answer this question, it’s probably a good idea to define each phrase.
Commercial real estate (as opposed to residential real estate) includes both retail and industrial properties. Commercial real estate refers to structures or land that are meant to create profit; industrial and retail real estate are just subsets of commercial real estate.
To begin, an industrial property is described as a structure utilised for the production of goods, and it can be either a factory or a plant. This is generally divided into three zones: light, medium, and heavy industries. This comprises warehouses, garages, and distribution hubs, among other things.
Retail property is a commercially zoned property that is only utilised for business reasons, such as selling a product rather than manufacturing it – retail stores, malls, shopping centres, and shops all fall under the retail umbrella.
Businesses who rent commercial real estate usually do so on a long-term basis. The building is generally owned by an investor, who takes rent from each business that runs inside.
Commercial real estate leases are divided into four categories, each demanding differing levels of obligation from both the landlord and the tenant.
- Tenant is responsible for both rent and property taxes under a single net lease.
- The renter is responsible for paying rent, property taxes, and insurance under a double net lease.
- The renter is responsible for paying rent, property taxes, insurance, and upkeep under a triple net lease.
- The renter is only liable for the rent; the landlord is responsible for property taxes, insurance, and maintenance.
If you’re thinking about buying a commercial property, there are a few factors to consider:
1) Appealing look – the last thing you want is a business property in Sydney that is unoccupied for an extended period of time. Consider the perspective of potential tenants: what will their consumers want to see?
2) Aesthetic entry – first impressions are important, so keep it basic. This is an excellent tool for placing your prospective clients… and their clients… in a positive state of mind.
3) Natural light is in high demand these days.
4) Location – adjacent to neighbouring offices, public transit, and other attractions.
Retail property has returned an average of 9% since 1980, though it is currently only returning around 6%. Industrial real estate is the most volatile, with a current return of roughly 7% (compared to a peak of around 12 percent during the 1990s crisis).
And, of course, read the lease carefully, regardless of the type of business property you’re contemplating. It may seem like a funny thing to say, but you’d be shocked at the problems that may arise just because things aren’t read correctly!