Investing in real estate is usually synonymous with investing in housing to live in or rent it. Investing in a commercial space can be an excellent real estate investment. Indeed, buying a commercial space to rent can generate potentially higher returns than housing, the risk of unpaid are less important and your recourse in case of unpaid more. Investing in commercial premises, however, remains a fairly confidential investment that meets specific rules. We explain everything about this placement.
Investing in a commercial space: what is it?
Investing in commercial premises involves acquiring the walls of business to rent them to an operator. This is generally referred to as the purchase of "commercial walls" or "shop walls." Attention, do not confuse the purchase of commercial walls with the purchase of the business or right to the lease. Indeed, the purchase of the business is made by the tenant of the commercial premises.
On average, an investment in commercial premises can generate between 4% and 10% annual yield, nearly two times more than for residential properties, whose rates of return are between 2% and 5%. However, in the case of an investor market, the prospect of capital gains on exit is sometimes lower than for a home, since the buyer will mainly think about rent and profitability. In fact, unlike dwellings, the price of commercial premises walls is not fixed at a price per square meter: it depends essentially on the potential rent of the premises. Thus to calculate the price of commercial walls, one must know or estimate the rent of the premises and the expected profitability — for example, a room that clears 15.
A more secure rental
Eases of commercial premises are leases signed for nine years with commitment periods of 3 years (we speak of lease "3-6-9"). Thus the tenant cannot decide to stop his lease when he sees fit; he will have to wait until the end of a period of 3 years (or triennial), which gives you visibility on rents collected. Also, the tenant has every interest in paying his rent, even in case of difficulties, because if he were to be excluded, he would lose a substantial part of his business. Finally, in the case of unpaid bills, the remedies available to you are simpler and faster than for residential property, and the notion of a winter break does not exist. Thus a tenant who fails can be evicted in less than a year (when it often takes 3 or 4 for residential properties.
Absolute priority to the location of the commercial premises!
To succeed in investment in commercial walls, the most important criterion is, of course, the location. A good location is a place very popular with consumers that will allow the tenant to make a good turnover or it is he who will pay you rent and ensure the profitability and sustainability of your investment.
The best locations are those that benefit from an important passage. These may be shopping streets in city centers, pedestrian streets or immediate surroundings of a metro station or a tram stop. We then speak of "locations n.1". Be careful, unlike dwellings where the values are roughly equal for streets close to the same neighborhood, where the value can vary from single to triple or quadruple for very close streets. Sometimes a strong difference can even exist between 2 portions of the same street. For example, the prices of commercial premises rue de Vaugirard in Paris can vary from 1 to 4 for the same area depending on the portion of the street in which they are located.
Pitches no.1 offer great security to the investor: the tenants are generally of quality, and their turnover is well secured. Also, in the case of departure of the tenant, these locations are quickly takers. In return, the profitability of such premises will logically be lower.
For investors who do not want to sacrifice profitability while making a sufficiently secure investment, it is possible to target so-called "1a" or "n" sites. 2 "in areas that are evolving: urban transformation, new transport lines, etc.
Buy a commercial space rented or empty?
To maximize your profitability, it is often best to invest in empty commercial walls that require work. Thus after work, it is possible to obtain higher profitability than the one on which the premises were bought.
However, the purchase of occupied commercial walls has two major advantages: it makes it possible to know the rent and thus the profitability at the time of the purchase, and this presents less risk over the duration during which the local will remain unoccupied. If you buy empty (a common case when you are dealing with a business located in a new building), you will need to do some rent estimation work by looking for information on comparable premises (location, area, marketability) to ensure the potential profitability of the investment.
Attention to the nature of the activity!
The strong growth of online commerce in recent years has had a significant impact on some traders. Thus, many stores had to close shop because of the strong competition of "pure players" who often practice lower prices on the Internet. Contrary to what one might think, this phenomenon does not only affect small traders. In recent years, so-called "frontline" tenants have experienced difficulties requiring them to close some of their stores, or even to file for bankruptcy in some cases. For example, the chain of stores Toys ’R’ we declared bankrupt in late 2017causing the closure of hundreds of stores in several countries. But this does not concern all activities, and you will, therefore, prefer activities that are more resistant to this new competition: catering, hairdressers, pharmacies, etc.
What alternatives to investing directly in commercial walls?
If you want to invest in commercial walls but you do not want to assume the risks, or you do not have the necessary time, two options can be to succeed in investment in commercial walls; the most important criterion is, of course, the location. A good location is a place very popular with consumers that will allow the tenant to make a good turnover or it is he who will pay you rent and ensure the profitability and sustainability of your investment.fered to you:
· Invest in SCPI. These are investment funds that invest in several properties for you. However, entry and management fees will have a significant impact on the return and liquidity of these investments, which has been a problem in the past in the event of a market downturn.
· Invest in real estate crowdfunding. For example, it is possible to invest in real estate companies that acquire commercial premises for rent. This allows you to invest indirectly in commercial real estate with returns that are often quite attractive.
