What Are the Advantages of Investing in Commercial Office Space

For someone who invests in real estate assets, understanding the landscape of commercial real estate is critical. Although the majority of investors have a portfolio heavy in residential assets, there are several advantages to owning commercial real estate.

By definition, commercial real estate includes retail space, office buildings, warehouses, malls, industrial buildings, and 'mixed use' projects.

Although there are some reasons why investors don’t target commercial real estate, this article is going to discuss the benefits.

Real Estate News

Advantages of Owning a Commercial Asset

Higher yields:
Based on prior trends, commercial assets generally yield a six percent return, compared to a residential asset that yields three to four percent. At the high end of the range, a commercial asset can yield as much as 10 to 11 percent per annum.

Lower maintenance expenses:
With regards to commercial buildings, tenants often do their own upkeep in the interest of serving their customers better. Secondly, in most commercial leases the tenant pays the maintenance expenses on the property. On the flip side, the cost of maintenance for residential homes tends to be higher due to the wear and tear of multiple tenants.

Better valuation:
Because commercial assets generally have a higher yield, they also have a higher valuation when compared to residential buildings.

Longer leases:
Commercial leases generally have longer leases and higher income opportunities than residential properties. Average lease terms are three to five years. Yet, depending on the condition of the market, a landlord can draw up a lease for a term of five to 10 years.

Strategy of leveraging:
Leveraging a commercial asset is a strategy used by landlords to maximize their return on investment (ROI). A favorable leveraging position looks like this. The loan you take out on the building must have a lower interest rate than the investment’s return percentage. The better your commercial asset performs the more money in your pocket.

Faster appreciation:
Commercial assets often appreciate faster than residential assets in the long run. This happens because a commercial asset can attract more investors due to the longer, more stable leases, and the ability to attract high quality tenants.

Tax depreciation advantages:
As an investor in a commercial building you are eligible for significant tax advantages by way of depreciation and improvements made to the building.

Protection against inflation:
Commercial assets have a built-in protection against inflation because their leases are designed to increase rents periodically. Another form of protection occurs when the lease specifies that expenses are the responsibility of tenants.

Larger number of investors:
Even though residential assets can attract a healthy number of investors, commercial assets have the potential to attract even more investors. Therefore, the chances of having a successful disposal process is higher with a commercial asset.

Ryan Gravel
Ryan Gravel

Ryan Gravel is an American real estate broker and developer. He began his career at a young age working for his family owned construction company.
After graduating college at the University of Central Florida with a degree in business, Ryan set out to find untapped prolific markets around the world. His search landed him in Playa del Carmen, Mexico where he founded Virgin Realty Mexico and co-founded the Saatal Development Group one of the fastest growing development companies in the Riviera Maya.
With extensive market knowledge, professionalism, etiquette, innovation and integrity Ryan is known as one of the most highly respected real estate advisors in the region.

Read more
Contact us