Risks for Businesses Investing in Commercial Property

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Investing in commercial property offers a great opportunity for many businesses to make a profit, whether it is through buying buildings for the business itself to use or to be rented out. It is a great way to diversify investment portfolios, although many approach the market with caution after the financial crash. There remain a lot of risks for companies investing in commercial property, which they must weigh up and be aware of before taking such a step.

Location Risk

A lot of what helps determine a property’s value is its location. This is something which obviously cannot be changed, so there is a big risk involved if the overall reputation of the area falls. London has seen the value of a lot of its commercial property keep rising, but other areas of the country have seen much bigger falls. Assess the location risk before investing by looking at selling prices over the past few years and what the area offers, such as transport links and other nearby amenities, that could increase its value.

Tenant and Leasing Problems

Tenants are required as a source of income when investing in commercial property and renting it out. In some cases, you will be able to purchase property and it will come with tenants who are happy to stay. However, if you buy commercial property that is empty, there is the risk that you do not find any paying tenants happy to rent the place. Leasing issues, such as its length, can also cause a few problems.

Cyclical Assets

All types of property are essentially cyclical investments. Its value will go up and down over time, reflected in the returns it produces also increasing and decreasing. Commercial property value is estimated to follow nine or ten year cycles, though it is best to seek professional advice and investment help from GVA Worldwide to get a good market overview before putting your money behind any kind of property.

Time and Focus

If you are a business that is looking to expand into the commercial property sector, then be aware that it takes up a lot of time and effort. This can pose a risk you your business’ main goals when spending too much time focusing on tasks associated with the property and not growing the main company. Outsourcing such work is one possible solution or designating to a specific in-house worker.

Being aware of all the risks of investing in commercial property is vital to ensure your business still runs smoothly.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

Comments

  1. Choosing a viable location and defining your vision for the future are two key factors when you are investing in commercial property.

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