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How to invest in commercial property

How to invest in commercial property

Australians are now living longer than ever, with the official life expectancy now over 80 for both men and women, and fast approaching the magic century.

As a result, the way people are planning for retirement is changing, with financial security become a huge consideration to those who wish to maintain the same quality of lifestyle once they leave the workforce. But with historically low interest rates giving cash investors a paltry return on their money, it is now almost impossible to live from savings alone. If you have $1m in cash in the bank right now, even a high interest savings account would only deliver around $30,000 in interest per year – money that would then be subject to income tax.

“With the lowering of the government cash rate, it is near impossible to live on savings alone and when comparing investments many are leaning towards unlisted property funds, which over time have managed to outperform government bonds, the ASX and Australian Real Estate Investment Trusts,” says Jason Huljich, CEO for Unlisted Property Funds, Centuria.

Through these types of unlisted property funds, commercial real estate is becoming more accessible as an investment for all Australians, and Huljich says monitoring the market isn’t as complex as investors may think.

For instance, a recent report by BIS Shrapnel found that the metropolitan office market in Sydney has begun a strong upward swing and by the end of 2018, the vacancy rate is forecast to fall to 4% across the city. It’s then predicted to stay low for at least another two years.

“When investing in commercial real estate, investors should explore how certain suburbs may increase in demand due to new transport links and other infrastructure, the lack of development sites, increasing amenity and how the office workforce is becoming decentralised from CBD’s due to lower rental costs and easier commutes,” he says. “It’s equally important to properly assess the property’s tenants to help gauge the strength of an investment. Tenants such as government organisations and ASX listed companies are preferable to smaller private companies and these larger tenants tend to have longer lease periods.”

Adds Huljich, “The BIS Shrapnel report forecast that suburbs such as Chatswood in Sydney will see commercial rents rise by over 38% in the next 6 years and buildings such as The Zenith, which is part of a new Centuria unlisted property fund, are likely to benefit significantly from this forecast over the next decade.”