4 factors that impact commercial property return on investment

In pursuit of high returns, investors should strive to mitigate the risks involved. Ample research on the property and its market can give a clearer picture of the possible return on investment. But here are four factors which might affect just how much money you get back:

1. Location

A property located close to other commercial spaces in a well-recognised area is set to attract greater yields. A perfectly positioned commercial property receives a high footfall of customers since it is easily accessible by public transport. Also, access to essential amenities like parking, proper roads, shopping centres, water, and electricity makes the property more lucrative.

Additionally, the rental income may vary from town to town and city to city. 

2. Type of tenant

The type of tenant occupying your investment property can determine the level of return you get from it. For instance, you could rent or lease it to a corporate firm, a distributor, a retailer, or a manufacturer. With ranging levels of competition, demand and industry disruption amongst these types of tenants the returns can also vary.

3. Interest rates

Higher interest rates are an indicator of a growing economy and a rise of more businesses. This means that the demand for the available rental spaces is higher, and landlords can price their rates competitively. However, buyers of investment properties will have to pay more to acquire a property when the interest rates are high. Therefore, the net income from the investments will be generally low.

On the flip side, lower interest rates make it cheaper to secure financing to buy a commercial investment property. This means that investors can get more of a net yield from their investments. 

4. lease conditions

Generally, yields are calculated as net yields in commercial property. However, there are some leases that may contain clauses stating the landlord pays for certain outgoings which can impact net cash flow. Other things to note are tenant incentives noted in the lease, tenants may in future expect these incentives again or they may move out with dissatisfaction of not getting this again (impacting future value + vacanct periods). Therefore, be sure to do thorough research before buying an investment property.

Investorkit has a team of professionals that helps buyers conduct due diligence, negotiate, strategize and more on commercial properties. Request a free consultation today, and we will assist you in securing a rare positive cash flow commercial or residential investment property.