Finding an investment that generates income can be a hard thing. For many investors, commercial property is an attractive prospect because it’s a route that offers strong returns, insurance against inflation and an income stream that is less vulnerable to overall market changes.
For these reasons- and many more – clever investors are looking long and hard at the commercial property market as the place to put their money.
Read on to find out why investors are so enamoured the commercial property market.
Less Risk, More Diversification
Spreading investments with commercial property is a great way to mitigate risk and build some diversification into your portfolio.
Free from attachments to the stock market, equities and bonds, commercial property is a great way to secure an investment that moves independently of outside forces. If the markets are volatile, your investment won’t fluctuate wildly. Commercial property prices are determined by valuation, which means short-term volatility isn’t an issue and you can acquire a safe, stable investment backbone for your portfolio.
Additionally, income from commercial property is less likely to see dramatic falls because legally binding leases are in place. Long-term agreements between commercial tenants and property owners are set in stone, so the income stream from them is constant. Again, it’s an example of how commercial properties are not so vulnerable to wider economic issues.
This low-level relationship between commercial investment properties and equities and the wider economic picture means commercial property is an excellent low-risk, diversifying option for your investments.
The How
There are many ways to invest in commercial property, from full ownership to indirect property funds.
- Direct investment is the simplest – and most expensive – form of commercial property investment. It means buying all – or a share – of a commercial property outright. Many investors may lack the level of funds needed for this option, but it is a good way to secure an investment long-term. It also offers the benefit of a cash boon if property prices rocket upwards.
- Direct commercial property funds are a more accessible avenue for most investors. You invest via a collective investment scheme straight into a commercial property like a warehouse or office building, seeing a share of income in return or capital growth from increasing property values. This is usually done via an investment trust or similar instrument.
- Indirect property funds are, unlike the other options on this list, linked to the stock market. This doesn’t hold the same diversification security of the other routes discussed and more focuses on investment in the shares of a property company. Obviously, shares can move up or down in value and it’s an approach worth taking only if you have great confidence in the company you’re investing in.
Ultimately, a direct commercial property fund may be the best avenue for the investor looking to enter the commercial property market. The risks are the lowest and it offers the security of income and potential growth in property prices.
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