Uses and Types of Commercial Property

by Alfie Davies Financial Manager

Real estate property can be categorised into commercial property and residential property. Commercial property is that which is sold or leased for business activities. If the real estate generates revenue for the owner, is rented out, or falls into any category of use other than that of the private residence, it is considered as commercial property. Commercial properties can be categorised into the following:

1. Office buildings: This category includes single-tenant properties, small sized offices to urban skyscrapers.

2. Industrial properties: This category ranges from smaller properties known as “Flex” or “R&D”, to larger warehouses, mines and factories.

3. Retail property: This category includes shopping complexes, retail stores and warehouses.

4. Vacant land: This includes undeveloped, raw land that is meant to be sold in the future for building commercial properties.

Factors that should be taken into account before buying commercial property

Cape Town has emerged as a leading hub of the commercial property market. The following factors should be kept in mind before investing in commercial property ready for sale in Cape Town:

1. Location: Investors should know that location of the commercial property is a key factor. The location should be as close as possible to the clients, employees and suppliers, thus reducing the transport costs for the business owner.

2. Condition: Before buying the commercial property, it is important to carefully assess how much repair the property would require, the costs of the repairs, and the time taken to repair. If the property cannot be made ready on time, buying it would be a costly mistake for the business owner.

3. Access and parking issues: The business owner needs to make sure that the commercial property that is for sale offers easy accommodation and sufficient parking facilities to their clients as well as employees.

4. Zoning and improvement limitations: Not all commercial properties are given zoning sanctions for certain improvements.The buyer should check with the permitted zoning specifications of the commercial property s/he wishes to buy.

Pros of investing in commercial property

The investors prefer to buy commercial properties for the following reasons:

1. Income potential: The best reason to invest in commercial property is the revenue potential. Commercial properties generally yield an annual return off the purchase price between 6% and 12%, which is much higher range than that of the residential properties. The generation of additional cash flow attracts several investors.

2. Professional relationships: Investors of commercial property are usually LLC-s and operate the property as a business entity. The landlord and tenant maintain a strictly professional relationship which contributes to the growth of the business.

3. Limited hours of operation: As most businesses do not operate at night, the property owner does not have to worry about receiving calls at midnight from tenants. The monitoring of security is easily done through alarm services.

4. More objective price evaluations: It is easier to evaluate the prices of commercial property as the current owner’s income details can be easily found out.

The expansion of the real estate market in Cape Town is largely due to the proactive involvement of the South African government.