- Lease terms
Long-term leases of 3–5 years or more can have advantages, but it takes longer to find a tenant if the property becomes vacant. Prolonged periods of vacancy are common and an investor will need to be able to handle the carrying costs during this period.
- Size of commercial property
Larger commercial properties can be harder to lease than small suites and will cost a lot more to hold.
Changes in supply conditions can create potential problems. An increase in new property coming onto the market in the same area creates a threat to existing tenancies as tenants may look to upgrade or expand. Strong supply can also reduce potential yields.
- Changes in infrastructure
Major infrastructure implementations or changes have both a beneficial and negative effect on commercial property returns. While infrastructure can attract commercial investment to an area, it has the negative effect of drawing tenants from existing areas. Keep in mind that areas close to CBDs are always popular. However, new growth areas further away tend to have more pronounced cycles.
- Leases can be three, five or even 10 years with an option to renew.
- Rental increases linked to CPI.
- The tenant pays all outgoings. This includes rates, water, body corporate fees, etc.
- The tenant makes good any physical changes (often the tenant will be allowed to install partitions etc, however, the owner reserves the right to have the office, shop or warehouse restored to its original condition). This enables the owner to rent to a suitable tenant when the existing tenant leaves.
- Some types of tenancies may require special council approval, for example chemical treatment facilities (such as those used by an electroplater), medical centres, childcare centres and so on.
Leases over a certain value are registered with the Department of Lands (NSW) or equivalent in each state.