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The benefits of investing in commercial property

The benefits of investing in commercial property

Real estate is one of the most popular asset classes for investors. Owning residential real estate, in particular, has been a primary goal of New Zealanders for generations – mostly in the form of a family home. The ongoing demand for property in this country has made real estate synonymous with a stable, ever-growing asset.

The financial services industry is constantly coming up with innovative new products for retail and wholesale investors that help them invest in the property market. While most people are familiar with investing in residential real estate, commercial real estate can offer equally attractive – and often better – returns.

Savvy investors can increasingly take advantage of the unique benefits offered by commercial real estate. As always, however, it’s vital to understand the risks and returns that different investments offer when you choose where to allocate your capital.

 

Here are two advantages of investing in commercial real estate:

1. Potential higher returns

One of the biggest advantages of investing in commercial real estate is that they can generate healthy returns relative to other types of investment. These returns come in the form of current rental yields, as well as capital gains over the long term.

Commercial property investment can often provide greater rental yields – in the range of 5-10% – compared with the returns offered by residential properties – at about 3-5%. As rental yields are a percentage of income to the total cost of a property, these yields decrease in desirable locations where property values are high and rising. Lower rental yields can, however, be offset by the returns offered by an increase in the value of the commercial real estate investment over time.

As an example, commercial locations in Auckland have seen some significant capital gains due to high demand over recent years. These capital gains are essential for investors, as they create additional value on the underlying assets and can provide a safer investment over the long term.

2. Protection provided by a commercial lease

Much of the benefit attributed to commercial real estate comes from the lease agreements signed by the owner-investor and the tenants. The first benefit of a commercial lease agreement comes in the form of lower maintenance costs for the owner.

In many cases with commercial real estate the burden of the cost of repairs, maintenance and property management fees fall on the tenant, rather than the owner. This is different to residential real estate agreements, where the landlord pays these costs. This naturally reduces the returns generated through the rental yields of residential property, compared with commercial real estate.

Additionally, commercial real estate leases are generally held for longer periods than residential lease agreements. A lease agreement for a commercial property can extend between three and 12 years, which guarantees a stable source of revenue for the owners and significantly reduces the investment’s risk profile.

Residential lease agreements are generally for 12 months at a time before being rolled over, which creates a much higher risk for investors. High tenant turnover can result in periods of vacant tenancy and reduced cash flow. It also means more time and cost spent advertising for tenants, interviewing and vetting them, arranging tenancy agreements, and lodging bonds with Tenancy Services.

 

How to access commercial real estate investment with Mates Invest

Historically, two main barriers have prevented wholesale investors and experienced retail investors from participating in the commercial real estate market. These were capital constraints and access to expert management.

Capital constraints have always been a primary issue for many investors, as the most desirable commercial real estate properties sell for millions of dollars. Investors either can’t or don’t have the appetite to raise the capital necessary to purchase a commercial real estate opportunity and expose themselves to the financing costs or risks.

Access to expert management has been another chronic issue for wholesale or experienced retail investors when wanting to access the benefits of commercial real estate. Investors have always strived to generate a passive income from their portfolio; however, commercial real estate requires an active and reliable management system to succeed – particularly in the initial stages of an investment project.

Mates Invest provides a solution to the historical challenge of capital constraints by allowing investors to pool their funds and benefit from the opportunities provided by commercial real estate. We are also supported by an expert New Zealand based team experienced in property investment.

Additionally, Mates Invest offers a unique opportunity to keep profits in this country through our 100% local, cash-backed business model. This eliminates exposure to bank debt, which erodes capital over time through financing costs and ensures all capital is reinvested back into the New Zealand economy.

This offer is available to New Zealanders only.


If you wish to express interest in the Mates Invest Investment Fund, get in touch today for a no-obligation chat. This opportunity is currently only open to wholesale investors who hold New Zealand passports. Some investment mandates and criteria apply.

Media Contacts

Courtney Harrison

Courtney Harrison
Compliance & Communications

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