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When investing in commercial property, research is key. Look into the location and surrounding businesses and search for a property for tenants, not for you. Traditionally, this type of investment is undertaken by institutional investors and property professionals, but with a wealth of information available, investing in commercial property is now more accessible.
Investing in a commercial unit, be it an office space in Business Bay, a retail space in Dubai Marina or a warehouse in DIP, can bring many benefits. But as with any investment, there are pros and cons.
The upsides include: longer leases than residential property which are typically between three and 10 years as businesses need to establish a base; the property is looked after; rents are higher and more predictable; and the lease usually requires the tenant who does not intend to renew the contract to inform the owner up to six months before it expires, giving the investor time to look for a new tenant.
The downsides are: higher financing costs - most lenders require a deposit of at least 50% on financing, and the investor needs to prove to the lender that the property will perform so that the rental income can cover the monthly repayments; higher risk - higher vacancy rates mean higher risk for investors, the turnover of tenants is generally slower due to the nature of the business itself and capital growth in the commercial sector tends to be lower; and lack of liquidity - commercial properties are large such as warehouses, staff accommodation or logistics centers, and transactions are lengthy. In a down market, this asset type is less liquid and appeals only to a small demographic.
If all these still leave you a little wary about diving into commercial property, there are various property funds and real estate agencies to be considered, enabling you to gain a piece of the action without the headache and expense of going all out and doing it yourself.
• Investing in commercial property has its own pros and cons
• Upsides include longer leases, higher rents, well-maintained units
• Downsides include higher financing costs and risks, lack of liquidity
Source: Pooja Mihir Shah, Special to Properties
The writer is Director, Green House Real Estate