The property market can be bewildering for those who are unfamiliar with the sector and do not have much experience or professional advice. This is necessary if you intend to invest in commercial premises. Our company through its network has commercial premises in Alicante, Almeria, Barcelona, Balearic Islands, Madrid and Malaga. Once you control basic concepts such as leasing, capitalization rates, tenants, risk and loans, you can begin to gain confidence in the idea of investing in commercial property.
Commercial premises for rent
Commercial premises, what are they?
Commercial properties are properties in which businesses are established, not suitable for residential use. Commercial premises are, for example, shopping centers, office space, retail shops, warehouses and storage units, industrial sheds, areas for restaurants and bars, as well as for petrol stations.
Why invest in commercial property?
Buying flats or houses to rent out is a good option, but sometimes the fluctuations in prices and the expenses incurred by such properties can mean that the cash flow is significantly lower. Consequently, less money is received.
Rents for these properties are generally evaluated based on how much similar properties are selling for; one way to evaluate both multi-family residential and commercial rentals is to know what yield they are capable of generating. Of course, the area in which they are located also plays a role.
Many tenants, which in the case of commercial properties are businesses, prefer to rent the property rather than buy it. This means regular rents for the landlord.
In terms of rents, it favour the owners of commercial premises because the profitability earned from the acquisition and subsequent rental is higher than that of residential properties, with a percentage of between 5% and 15% (remember that real estate profitability comes from both sales and rentals).
This is one of the main reasons, the high profitability.
On the other hand, having a continuous cash flow, i.e. having rented commercial premises allows the rents to gradually amortise the initial investment. Expenses are borne by the renter and for the owner it is as if “it pays for itself”.
Another plus point is that contracts are longer and more flexible.
This results in more visibility and greater accuracy when predicting rent generation, and the landlord can know the future benefits of such a project. And because the current legislation for commercial premises is more flexible than that for residential property, different exit strategies can be generated, such as selling the property, taking advantage of circumstances such as rising markets.
Price developments of commercial premises
The commercial sector is one of the sectors most affected by the Covid-19 health crisis, due to the confinement and the numerous restrictions it is facing in terms of both capacity and opening hours.
In fact, shops are still being forced to close in many municipalities where the incidence rate is very high, and in those where they can open, there is a drop in footfall of up to 40% in shopping centres. Thus, in the third quarter of 2020 the price of transactions reached its lowest price in the last 17 years, 1,238 euros per m2, according to data from the big data real estate platform Brainsre. And in fact, the publication prices for the fourth quarter of 2020 already refer to a figure of 975 euros per m2.
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