Commercial Real Estate in Melbourne: Where to Start

What does being a property investor look like to you? Whilst we all have an idea in our head of what it means to rent properties and own land, quite often, there are many options that go unconsidered in this process. For many, this means that property investment is limited to the residential sector, rather than the many options that don’t fall under housing.

Commercial real estate in Melbourne has always been an enormous market and one that more and more interested investors are looking into over time. From long lease terms to quite desirable returns, commercial real estate is a fantastic opportunity to diversify your investments and find a wealth of options for potential rental income that isn’t possible looking exclusively into housing.

So, what does it mean to invest in commercial real estate in Melbourne, and where should one start if they decide to go down this road?

What is Considered Commercial Real Estate?

This is an important question to answer, as it is a far wider-reaching sector than many would initially assume. Put simply, commercial real estate is any property that is not intended for residential use and is used for the purpose of making a profit. This means that commercial real estate in Melbourne could mean anything from industrial properties to hotels and shopping centres.

If you move out into more rural areas, this would also include the acquisition of things like farmland. This offers an enormous array of potential investment options, as well as options in areas that you may not have initially considered.

What Are the Benefits of Investing in Commercial Real Estate?

As with any form of investment, there are always going to be pros and cons compared to other opportunities. With that said, there are a number of benefits that come with commercial real estate when compared to other similar opportunities. These include:

• A strong ROI, compared with a very consistent income stream.
• Long-term tenants, with certain businesses becoming tied to their location for very extended periods of time at an average of approximately 3-10 years.
• It’s easier to transfer leases.
• Due to the nature of businesses, it’s common for tenants to add value over time due to the increased need for infrastructure.
• A wide array of choices and opportunities.
• Unlike many residential agreements, commercial real estate tenants are often in charge of any outgoing expenses, such as water.

As you can see, there are many clear benefits to investing within the commercial sector. However, as mentioned earlier, there are also some negatives that should be considered when going down this avenue.

The Cons of Commercial Real Estate 

Naturally, the agreements made between owners and businesses is quite different to the agreements of residential tenants and landlords. Because of this, whilst there are certainly unique benefits, there are unique pitfalls as well. These include:

• Potentially extended periods of vacancy depending on the state of industries that may find your space useful. This could be seen recently with lockdowns causing many restaurants and bars to shut down, leading to extended periods without any form of income for property owners.
• The above can also lead to difficult debt repayments in the event that income is no longer being provided through the property.
• More stringent compliance standards that may fall on the property owner in the event that a space is not adequately suited to the safety standards and requirements of their renters.
• The impact of economic conditions on commercial properties is often far greater than that of standard residential homes.

Whilst these may seem like bleak prospects, the takeaway is that commercial real estate investments can be more temperamental than their residential counterparts. During difficult times, people still need places to live, but the market for businesses needing physical locations can be slightly more volatile.

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Whether you’re new to the property market or are simply looking to explore other avenues, commercial real estate in Melbourne is always going to be a worthwhile area to explore. Melbourne’s rich business culture and reputation as a thriving hub for commerce make it a peak location. Plus, with Melbourne also being known as the cafe capital, there are always going to be businesses looking to expand their reach through physical locations, even in the age of digital.

Looking for more quick tips, news and updates regarding the Melbourne real estate landscape? Stay up-to-date with new blogs, posts and resources by visiting the My Rental real estate blog. As one of the state’s most trusted, innovative property management companies, we at My Rental do everything we can to ensure we have the latest insights into Melbourne’s property landscape