Investing in commercial real estate is within the 3 most popular categories of real estate investment alongside investing in residential and industrial real estate. It is known as commercial property because the tenant is a company or business. While some businesses prefer to buy the properties they occupy, most companies choose to rent. This causes the owner or investor of a commercial property to receive periodic income from the tenant.
Commercial premises are a great alternative to diversify the savings of every investor. In fact, in 2017 only in Spain almost 24,000 purchase and sale transactions were closed in this type of property, generating more than 3.7 million euros in market volume.
On the other hand, the demand for housing rental is not as high as in previous years, since users again prefer to invest in real estate by buying an apartment instead of renting it. This fact favors commercial investment, since the profitability they offer with their acquisition and subsequent rental is higher than that of homes, with percentages ranging from 6% to more than 15%.
Remember that the profitability of this type of real estate investment comes from two sources such as sale and rent.
Given the good health that this type of asset has enjoyed and the optimism of the experts for the end of 2018, where they predict that in cities such as Barcelona or Madrid it will continue to be the best investment decision, we offer you four essential reasons why invest in commercial premises:
1- Attractive returns. One of the reasons why professional and institutional investors land in this type of investment is, as we have mentioned, because of its attractive returns. Commercial premises generally have a higher profitability than homes and other types of assets. According to Idealista data, the gross rental profitability of premises nationwide in 2018 is 9.3%, ahead of offices (8.4%), homes (7.4%) and garages (5 ,1%).
2- Continuous cash flows. The main characteristic of investments in commercial premises is that they distribute periodic profits. These benefits come from the rental income of the property. The rental income is comparable to the coupon of a bond and manages to obtain income and periodic returns that amortize the initial investment.
3- Real asset that allows reducing risks. Like all real estate, it is within the category of tangible assets, they can be touched and felt. Financial assets generally behave differently from real assets. So the combinations of both in an investor's portfolio allow diversification. And therefore, they will usually reduce the overall risk of the investment portfolio.
4- Longer and more flexible rental contracts. This type of property generally has rental income protected by longer-term contracts. This generates greater visibility and prediction in the generation of income, which translates into visibility of the future benefits of the project. Likewise, the legislation to operate these rents is more flexible than that of residential rental, this makes it more capable of rethinking the strategy of exiting the investment or selling the property, giving the manager the possibility to take advantage of rising markets.
Investing in commercial premises is presented as a real investment alternative for those who seek to have a balanced investment portfolio.
Commercial spaces are a highly valued real estate investment product, where, depending on the area and its pedestrian traffic, optimal spaces can be found below the market price. And, if a reform is also carried out to improve or transform said property, an incredible revaluation can be obtained in its subsequent sale.
But, to reduce the risks and obtain a profitable real estate investment, it is advisable to bet on premises located in prime or central districts in the cities to guarantee the passage of a good flow of public and a good demand of those interested in their purchase and / or rental .
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