Commercial real estate can be a source of income under various schemes. Not the last place is speculative when an object is bought and sold many times. In addition, you can get a good profit by renting out the owned area.
Real estate and business
It is no secret that about five times more tenants are interested in residential real estate than in commercial premises. There is nothing to be surprised at, because investment in commercial real estate in Moscow is made by entrepreneurs, often large, medium-sized ones. There are relatively few such in our country.
The real estate market used to generate income depends on the situation in the country and in the world, in particular, on negative factors. As soon as a decline in business activity is observed, this is reflected in the demand for square meters. Its rise leads to the activation of tenants. Hence, price spikes characterizing this sector. Lately, investments in commercial real estate in Russia are rarely characterized as promising due to difficult economic conditions, as these are rather narrowly focused investments.
How much will we earn?
Prior to the crisis, collective investments in commercial real estate showed very high rates of return. Leading the premises:
- Warehouses
- offices.
It is known for several years when, in only 12 months, profit growth was doubled, that is, ownership of a small area became a source of stable considerable profit. But in the past few years, investments in commercial real estate do not always bring real income. Much depends on the selected object, which forces a very responsible attitude to decision-making in favor of one or another option.
An entrepreneur can count on success if he first developed a profit strategy that takes into account the features of the property he liked. In such a situation, the income from commercial space may exceed the possible profit from operations with residential. This is based on rental rates: in relation to objects for permanent residence, those that are designed for entrepreneurs are two, or even two and a half times more expensive. But the initial price may coincide.
Investments in commercial real estate in St. Petersburg, Moscow and other cities of the world also have such an important positive feature: the duration of the gain in time. Owning a certain object, the entrepreneur has the right to lease it under a long-term contract. This means that passive income will flow for years. Well, its size is determined by both the city and the specifics of a particular building. But living quarters can be rented expensively only constantly, which obliges you to constantly look for new customers.
It is important
If you intend to invest in commercial real estate in St. Petersburg, Moscow and other cities of the world, first pay attention to the concept of “capitalization ratio”. This term is applied to a value calculated on the basis of net annual income. Its value must be divided by the amount invested in the property upon its acquisition.
Regulatory indicators:
- for residential real estate - 3-7%;
- for commercial premises - 8-12%.
What to invest in?
As already noted above, for commercial premises the benefits received by their owners are higher than the indicators inherent in residential square meters. But not every object will be as profitable as another offered on the market.In order not to make a mistake and not invest money in a failed project, you need to know the signs that distinguish successful and promising options from those associated with unjustified risks.
Most popular categories:
- Warehouses
- Offices
- trading floors;
- Hotels
Criteria to be analyzed:
- demand, market specifics and offers;
- profitability, approximate payback period in the context of several investment options;
- the total result, which allows to determine which of the possible will bring the greatest profit.
If you are interested in offices and sites for shops, then for them the payback ratio is from five years to a decade. For hotels and warehouses, this period is rarely less than 7 years, often stretching to 11-12.
What to fear
If you plan to invest in commercial real estate, the life cycle of the object comes first. The indicative standards for the payback of various types of business are already indicated above. When analyzing an attractive option, keep in mind that these terms should be combined with each other. You don’t want your hotel to be handed over for overhaul or even demolished before it pays off?
However, the most important risk is investment in the construction of commercial real estate. No matter how successful the construction is at the moment when you transfer money for square meters, there are no guarantees that it will not be frozen in a few years. There is always a chance that the object will cease to be completed at all. It is very difficult to predict this, but practice shows: in a crisis and after it, the risk of such a situation is higher than in a calm time. And now, as you know, the real estate market is still in a state of shock after the crises of 2008-2009 and 2014.
However, the "secondary housing" also has certain complex aspects that make risky investments in commercial real estate. The criteria to pay attention to are indicated above. If an object shows itself as promising in all respects, then it makes sense to take a chance and invest money in it.
Market trends
Experts report that in recent years, investment in commercial real estate has grown by 71% compared to the crisis period of 2009. At the same time, market activity is still assessed as insufficient. Tangible changes occurred in the period 2014-2017. For this period, for obvious reasons, investments in commercial real estate from abroad have declined. The Russian economy is slowly building up its pace, which scares away those who are not afraid of the instability of the political situation. However, the last one has been straightening for two years now, which is reflected in the increase in the number of people interested in square meters.
The most popular areas are those that can be used for doing business in buildings built in large cities. Traditionally leading:
- Moscow;
- St. Petersburg.
I must say that even in the crisis period, the demand for space here practically did not fall, and now the market regularly shows great growth. The leading sectors are hotels, offices.
According to experts, by the end of 2018, the situation is absolutely stabilizing. If Russian entrepreneurs owning free funds prefer investment in German commercial real estate, experts predict that by then most of them will be interested in doing business in their home country.
Make money right
Commercial premises are traditionally in demand among investors. There are three schemes:
- purchase of an attached, built-in premises for subsequent transfer under a lease agreement;
- acquisition of an object in a new building to resell when construction is completed;
- purchase of an object where in the future its own business will open (possibly supposed to be sold as it grows)
An individual has the right to buy absolutely any real estate - these are the current laws.In the future, the object can be transferred on a rental basis or resold, as well as presented. But to become a landlord, you need to remember that commercial real estate is somewhat different from residential.
Pay attention to this aspect: when an individual transfers a commercial space for rent, he thereby conducts activities that contribute to making a profit. According to the laws of the country, registering as an enterprise in this case is not necessary. At the same time, if such activity is regular or it was possible to conclude an agreement lasting more than a year, then there is a chance that you will be recognized as an illegal entrepreneur, for which you can be punished. How the situation will turn out in a particular case depends on the court and the actions of the owner.
What is more profitable?
Traditionally, the most profitable investments in commercial real estate are made by the mechanism of "street retail". Real estate market experts say that in recent years, those who have funds in the range of 5-10 million can afford just such a method of increasing them.
There is only one drawback of the system - a high level of competition. All those people who previously invested in housing, but decided to move to a “more serious fish,” switched to this format, which could not but affect profitability. On the one hand, the volume of offers is growing rapidly, on the other hand, demand is not so great to such an extent. As a result, tenants can choose from a large number of offers what is most beneficial to them, and change lessors like gloves. You can survive only by regularly lowering the rate, but not every landlord is ready for this.
The best can count on the best
According to experts, the difficult market situation, which led to the fact that previously relevant schemes lose their effectiveness, makes it profitable to invest in commercial real estate in a new format. Benefit can be obtained by those who are able to quickly analyze what customers need and make a decision based on this information.
When choosing an object for investment, be sure to analyze all its parameters. Think about what category of tenants you are counting on, and try to predict what parameters they will require from the object for which they want to pay well. Based on this, choose a specific option. In particular, there is a high demand for those premises that are located in conditions of high traffic. At the same time, the high price with the already large cross-country ability is evidence of low investment returns, so avoid such facilities.
And if abroad?
Investments in German commercial real estate are traditionally popular, as it is commonly believed that this country is the most confident economy on its feet. Even in the conditions of the global crisis, which shook the enterprises of various countries, German real estate maintained its leading position and proved the reliability of investing in it.
What does the modern commercial real estate market in Germany look like? Up to 40% of its participants are investors from other countries. At the same time, the annual profitability of most objects varies between 3-9%. Experts say that by the end of 2016, more than 50 billion euros were invested in German commercial real estate, which exceeded the last decade. Regarding the average parameters, this has almost doubled.
The greatest demand for German offices is that they are bought by 47% of investors. Annual yield - up to 6%. Various retail space in 2016 attracted the attention of 18% of entrepreneurs with funds. For such facilities, the annual yield is 4-8%. Hotels and warehouses have become the area of activity of one tenth of foreign investors in Germany. These individuals can expect a profit of up to 6% per year.Apartments for students, institutions for the care of the elderly provide an annual income of 9%, and this interested about 15% of entrepreneurs.
Appearances and passwords
If you look at the experience of investors in 2016, you can see that the most attractive area is the so-called “Big Seven,” that is, the largest German cities. If you plan to take advantage of the experience of already successful entrepreneurs, then you should pay attention to precisely these settlements:
- the capital of the country is Berlin;
- Koln;
- Dusseldorf;
- the main Hanseatic city of Hamburg;
- beer world capital Munich;
- Stuttgart
- the largest in Hesse and the fifth largest in the state of Frankfurt.
According to analysts, over 2016, investment funds of more than seven billion euros were received in Munich. And this is relative to the entire volume of the country - about 13.5%.
There is nothing surprising in the attractiveness of Germany for investors, since it is to this day, despite the rather large number of objects, that there are practically no free offices. In large cities, about 2% of the premises are empty, in small towns this figure rises to 5%, but rarely exceeds it. Why is the situation so rosy for investors? This is being monitored by the state. This is expressed not only in the competitiveness of the market, but also in a reduced credit rate and attractive financial, economic climate. Interest on loans varies in the range of 1.5-2.8%. How much can I take a loan to invest this money in real estate? According to the laws of Germany - up to 70% of the cost. Agree, it sounds tempting?
There is a subtle point. German credit companies very carefully analyze each potential client, his intentions, and also evaluate how great the liquidity of the object has attracted the attention of a potential investor. If the asset is risky, then the probability of failure is high. In the case when the bank makes a deal, the buyer can be one hundred percent sure that this is an excellent and promising investment, which will become a means of prosperity for him.
To summarize
According to the results of studies conducted by VTsIOM not so long ago, more than 50% of the population of Russia are sure that buying real estate is the most effective method to preserve and increase their cash reserves. That is, the question does not sound “Is it worth buying?”, But “What to buy?”.
When choosing an object in which funds will be invested, try to carefully analyze all the features of real estate and not risk it again. Do not forget about the high competition in the market, evaluate it in different sectors of commercial real estate and calculate what annual income you can provide the option you like. Never make a decision in haste.