The profitability of investing in a particular real estate is determined by the presence of a large number of different factors: from the characteristics of a particular object to the state of affairs in the market as a whole.
The opportunity not only to save savings, but also to make a profit in the conditions of falling prices and rising mortgage rates makes these investments much more interesting, in contrast to work with the housing stock. In this regard, today we will talk about how expedient it is now to buy commercial real estate, what its variety should be given priority and what are the peculiarities of these investments.
Pros and cons of commercial real estate
Profitability can be called one of the main positive aspects of commercial real estate. According to many experts, the average rate of return for offices is 8-15%, for street retail stores – 10-12%, for warehouses – 10%. 8-10% per annum is generally determined by the average rate of return for retail buildings. Under such conditions, return on investment can be expected within ten or twelve years.
But before rushing into this sector, a number of peculiarities should be taken into account. First: a more complex asset in terms of regulation compared to residential. Two: the entry threshold here is usually much more expensive. Finally, thirdly, buying commercial real estate is always risky, regardless of the state of the market. It is impossible to say anything with certainty about your purchase, it can be both profitable and a burden that will be difficult to lease or sell.
What’s more profitable to buy
You can always protect your money from inflation and increase it with the help of commercial real estate, regardless of what kind of object it will be in general. Currently, investments in warehouses are considered more promising. But at the same time promising and investments in under construction commercial premises for street retail. Statistics shows that currently the greatest demand is for retail premises with the area of 50-100 square meters on the first floors of buildings. The demand for them reaches about one third of the total volume. Investors are also interested in buying up commercial real estate with an area of up to 50, as well as from 100 to 150 “squares” (18 and 14 percent, respectively.
At the same time, the demand for large premises with total area of 500 sq. m. and more is at a low level and reaches only 5% of the total volume. This is primarily due to the need for large financial resources both at the time of purchase and at the time of renovation or redevelopment.
On the part of private investors, the most popular at present are blocks whose area is in the range of 50 to 150 square meters. meters. This is due to the fact that purchase budgets are comparable to the size of investments in residential real estate, which for a significant part of private investors is not only affordable, but also psychologically comfortable solution.
According to experts, the growth of investment activity of offices in business centers under construction is caused by the existing shortage of relevant offers. This contributes to more favorable further resale and lease of such an object. Taking into account the fact that the rental yield of offices is about 2 times higher than that of housing, the rise in interest in such objects looks even more logical.
Street retail, offices and warehouses will require from the average investor much more in-depth knowledge and penetration into market processes. Financial investments in apartments are characterized by greater simplicity and intuition, apparently, due to the fact that today they resemble investments in residential premises to the maximum extent possible.
The profitability of the project depends primarily on the location of its purchase. The location of any large-scale production facilities, public transportation stops and metro stations, administrative buildings and educational institutions near the house increases the demand for apartments. And given that many firms in this sector provide a significant discount at the construction stage, investments in such objects definitely deserve at least attention.