Is buying office space a good investment?

June 2, 2020

Yes, buying an office space is a good investment! If you are a real estate investor who’s looking for ways to increase your ROI, you might want to invest in office spaces. Compared to other commercial properties, office spaces make up 20% of the retail real estate market and offer higher returns than different types of properties.

Although office investment properties present a high risk to the investor, real estate investors choose the risk of the high volatility of the market in exchange of definite benefits offered by up and coming property types such as medical offices.

First, let us understand what an office property is? Office buildings are either classified into Class A, Class B or Class C. Several factors are taken into consideration to determine which building belongs to which class, although they are subjective and can change over time. These determining factors are considered useful indicators of an individual property’s ability to attract tenants. Some of these factors are location, building finishes, building height, market presence, rent, etc.

Class A: Consists of top-notch systems and rents are higher than the area’s average, and has a definite market presence. Tenants pay high rent in exchange for high-quality amenities and exceptional building quality.

Class B: Properties are generally old with a less central location. The building amenities and quality is average, and the tenants who occupy these spaces are usually stable and choose to upgrade to Class A during economic downtimes.

Class C: The space is functional but not specialised, therefore attracting tenants based on lower price.

Office buildings are notoriously volatile. These investment properties are highly dependent on the growth of a business, which is, in turn, dependent upon the growth of jobs in its sector. But with the right guidance, you can make the most out of this property class. The business type and location also play an essential role in determining the profitability of the property. Though, when done right, you could be looking at a highly profitable investment.

Its benefits include:

1. Excellent investment:

Investing in office spaces is better than investing in stock markets, as stock markets have more of an erratic movement than decent returns. Whereas with office spaces, the rental income is of greater percentage of the property’s value in a year, a lot higher than a residential income property. However, capital appreciation will depend on the time of investment and the state of the economy.

2. Big-ticket:

Office properties are managed differently than residential investments. The horizon for office investments are much longer, and there’s not much scope for flipping these properties. Office spaces are located in more significant areas than residential properties, therefore, your investment is more significant. And unlike residential income investments, office investments are more dependent on how well the local economy is doing.

3. Fresh lease:

Like in the case of residential properties, you can invest in commercial properties when they are still under-construction or find a pre-leased and stabilized office property. The latter will save you the trouble of finding tenants and are easier to finance. Though office units especially medical spaces usually require a significantly more investments, they are easier to manage. One reason for this is that a big amount can be invested in one huge property instead of multiple units.

If you are sceptical on investing in office spaces and feel intimidated by the process, we can help you. We at Perfect RealEstate Investments can help you to determine the best path towards your goals. There is a lot to consider — and that’s why it makes the most sense to gain as much knowledge and insight into the process as you possibly can.

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