Now is a good time for investors to consider entering the commercial property market, as business restarts following the COVID-19 shutdown.
Banks are still lending to investors for commercial properties and interest rates are likely to remain low for quite some time, according to James Dawson of the Commercial Investing Academy.
Dawson, guest presenter on a 9 June webinar hosted by Hotspotting, says while inexperienced investors might be nervous about committing at the moment, with the right due diligence investors could secure a good cashflow-positive asset in the current market.
“Banks are lending (for commercial investment), it is business as usual,” he says.
“Obviously, there are certain things that are going to be different with certain banks and how they look at loans and servicing them, but there are some great deals around.”
Investors are already re-entering the market with buyer’s agents reporting business has returned to about 80% of normal transaction levels.
“There are people looking and I think there is a reasonable level of stock in commercial property,” Dawson says.
His advice on investment in the post COVID-19 market is to look for properties with stable tenants of the type which kept trading during the pandemic shutdown. This included supermarkets, petrol stations and medical tenants.
“That’s a good example of something that would bear well and be a great investment of the future,” he says. “Investments like that would definitely be a good pandemic-safe investment.”
Many industrial tenants also continued to trade well as they weren’t affected much in their day-to-day business by social distancing regulations.
No matter the asset, it’s still essential to stick to basic rules when investing in commercial property.
“I am always banging on about buying properties that are cashflow-positive and have some sort of upside or ability to manufacture some growth,” Dawson says.
Once investors have secured their asset, Dawson says they should quickly work towards having a financial buffer in place, a factor which saved many landlords during the COVID-19 shutdown. This meant putting aside some of the proceeds from a cashflow-positive investment property to fall back on during difficult economic times.
“In my 40 years of investing I never would have thought that the whole world would shut down so quickly and so hard,” he says. “That’s when you need that buffer of funds put aside.”
With some banks offering investment loans at below 3%, it shouldn’t take owners long to build up a buffer on the right commercial property.
Dawson says commercial and industrial investments in regional areas continued to perform well during the shutdown as they were not as badly affected as capital cities.
Areas such as Wollongong, Tamworth, Albury-Wodonga, Ballarat and the Sunshine Coast were worth considering for commercial investment, as they had solid, diverse economies.
Regardless of location, when investing in commercial or industrial property it’s important to investigate what other development options are nearby – otherwise you ran the risk of being affected by someone bigger and better building nearby and attracting tenants away from your property.
Dawson says people looking at a commercial investment post COVID-19 should also have in the back of their minds whether their tenant is one that can pivot and adapt their business operation if another pandemic or economic downturn was to occur.
Landlords who have tenants struggling to pay their rent at the moment should talk to them about what they can do to help each other.
And Dawson warns that any agreements on temporary changes to rental payments or conditions should be document by legal representatives.