A buyer’s guide to commercial property investment

Buying commercial property can be a profitable investment, but it’s not without its challenges. Whether you're a seasoned investor or a first-time buyer, understanding the critical factors that contribute to a sound investment decision is key. Here are some key factors to look for if you are considering purchasing commercial real estate: 

1. Location, location, location 

Location is one of the most important factors when buying commercial property. Industry experts agree that proximity to transport hubs, major roads, and amenities is critical. A location with good visibility and easy access for clients and employees can significantly enhance the property's value and potential for attracting long-term renters. When looking at location, also research and consider the area’s long-term growth prospects, including future infrastructure projects and local development plans. 

“Location is key because it impacts tenant demand, rental income, and long-term growth. Accessibility, visibility, and surrounding infrastructure all play a role in determining how successful the property will be,” says Belle Property Commercial North Shore Associate Director Baxter van Heyst. 

2. Property condition and age  

Pay attention to the physical state of the property and factor this into the decision-making process. It is essential to conduct a thorough inspection, including evaluating the structure, roof, plumbing, electrical systems, and HVAC units. Properties that require significant repairs or upgrades may pose unexpected costs and delays. 

It is also important to consider the age of the building. Older properties may have more maintenance requirements, while newer buildings may come with energy-efficient systems and less immediate work to be done. 

3. Zoning and land use regulations 

Understanding the zoning laws of the property is non-negotiable when considering commercial real estate. Zoning dictates how a property can be used, which can have a direct impact on its value and the type of businesses that can operate there. Ensure the property's zoning aligns with your intended purpose for the property and check for any restrictions, such as environmental regulations or historical preservation orders, which might limit the potential for renovation or expansion. 

Zoning is crucial agrees van Heyst, “Figure out why you’re buying the property. Is it for long-term holding, or are you looking for upside potential? Consider zoning to ensure the property has future growth opportunities while also fitting into your overall investment strategy.”  

4. Lease terms and tenant stability 

 When purchasing an income-generating property, the lease structure is key. Look for long-term, stable renters with solid financials, as they can provide consistent cash flow. Review lease agreements to understand rent escalation clauses, renewal options, and tenant obligations. Also, investigate the property’s vacancy history as properties with high renter turnover may be a red flag. 

5. Market trends and valuation 

Before making any final decisions, it’s important to analyse the local commercial real estate market. Trends in rental rates, vacancy rates, and overall demand will help determine if the property is a good investment. Consulting your local Belle Property Commercial office will provide valuable insights into the market’s trajectory and the property's fair market value. 

By considering these key factors commercial property buyers can reduce risks and set themselves up for success in a competitive market.