According to the most recent CBRE Report (Canada Q1 2018 Quarterly Statistics), Edmonton’s office market continues to demonstrate that commercial property investment is gaining momentum. Approximately 122,616 square feet of office space was leased in the first quarter of 2018. Most of the activity came from the financial core, which was driven by pent up demand and organic growth from the health and professional business sectors.
Every investment requires knowledge and a certain degree of caution. It is crucial to find out which regions in the city are expanding or are already well-valued, to research the prices, and to account for every cost. It is essential to think about the rental rates that will be applied and the time it will take to make back your investment.
The best investment opportunities are the result of the interaction between the best conditions, such as security, profitability and liquidity. Generally, when the variable in question is profitability, the leasing of commercial real estate shoots to the front. How do these factors affect commercial property investment?
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Location is a factor that should weigh in when choosing the property. Some regions in the city may be more profitable for those who are interested in commercial real estate investing. For instance, locations like those near the University of Alberta, are different than those downtown. Access to Edmonton transit and the number of available parking spaces are important attributes to consider.
For these reasons, location should weigh in the choice of the property you choose. Locations with good transportation and food infrastructure earn points for the candidates for the lease. This will depend on the location of the property.
The tenant profile of both types (commercial/residential) should also weigh in your decision. When you rent to businesses, the credit guarantees are better in quality. Also, the contracts are signed for a much longer duration than residential properties. In commercial enterprises, the period varies from five to ten years, while with residential properties, the lease lasts, on average, two years.
The commercial tenant will hardly want to miss that point. In the case of residences, the family profile changes with time (a young family versus empty nesters) and this influences the type of property in which people choose to live.
Economic stability, however, is not enough to ensure successful investment in commercial real estate. Properties that are made up of medium and large companies are the best option. Our perception is that real estate with a more corporate profile has better credit risk.
It is also important to research the profile of the region to decide the type of property you want to purchase. In some areas, there is demand for more office space while, in others, residences are the most sought after.
Considering that the contract is more extended, that the negotiation is more straightforward and that there is less concern with the maintenance, the lease of a commercial property becomes safer for business owners. With this, you have less risk of suffering a loss in your equity and continuously recovering your investment.
Although you should evaluate each case, investing in commercial property with rent as a source of income brings several advantages, especially the possibility of more extended and safer contracts. This decision, however, needs to be taken in an all-round way to deliver the expected profitability.
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As Edmonton’s office market continues to increase, you should understand the factors that affect its success. Understand that location, rentability, and space are interrelated and influence security, profitability and liquidity. That way, you can ensure that you are making the best investment choice.
If you are interested in commercial property investing, reach out to Braden Equities Inc. With our years of experience, our commercial property managers bring businesses together for success.
Get in touch with us today.