Commercial property investment strategies

As a nationwide property investor, there are a countless number of commercial property investment strategies that we might deploy on any given asset, each considering the unique features of the property, the market and our (and our investors’) unique investment goals.

Commercial property strategies can be tailored to various risk profiles and investment goals. And while we only outline our specific strategies in each investment’s Information Memorandum, this page highlights some popular commercial property investment strategies to help you understand the thought that goes behind investing in a high-quality commercial asset.

(Note: There are no guarantees on returns for any and all investment strategies, even with the amount of risk taken or nous deployed. That’s the nature of investing, after all)  

Understanding commercial property investment strategies

Office buildings, retail spaces, warehouses and medical centres are all examples of commercial real estate assets—simply put, they are properties occupied by businesses. Commercial properties can often offer higher yields, longer lease terms and more stable cash flows than residential investments. However, they also require a deep understanding of market dynamics, tenant needs and risk management.

Most crucial of all, is investors begin their investment journey with a strategy in mind.

Conservative Investment Strategies

Conservative strategies focus on acquiring high-quality, well-located properties with stable income streams and minimal risk (known as core assets). These assets are typically fully leased to national or international tenants with a solid track record and are located in desirable areas with high demand.

• Risk level: Low
• Returns: Yields are modest, typically below 10 per cent annually (with potential for capital growth with the help of market movements)
• Ideal for: Investors seeking steady, predictable returns with minimal management requirements

Conservative and core investments are resilient in both favourable and adverse market conditions, making them an excellent choice for risk-averse investors.

Core-Plus Strategies

A core-plus strategy might target properties that are mostly stable but have potential for improvement through management efficiencies or minor renovations. Strategies like these allow investors to actively seek capital appreciation by enhancing the overall property value. They might look to increase the tenancy profile, fill vacancies or enhance the property facade, layout or aesthetics.

• Risk level: Low to moderate
• Returns: 10-15 per cent average annualised returns (perhaps far higher if a more proactive approach is taken)
• Ideal for: Investors comfortable with moderate risk and looking for better yields than core properties

Core-plus properties might require some capital investment to address deferred maintenance or upgrade amenities, with the reward of increased appeal and potential rental income.

Value-Add Strategies

A value-add strategyusually involves acquiring properties that need significant improvements or repositioning. These properties are often underperforming but have the potential to yield substantial returns once enhanced.

• Risk level: Moderate
• Returns: 15-19 per cent annually (with far higher capital growth on offer for experienced investors with considerable acquisition experience)
• Ideal for: Experienced investors willing to take on moderate risk for higher returns

Value-add investments typically involve a hands-on approach—something we love to take—including capital expenditure (CAPEX) for fit-outs and upgrades, activating targeted leasing strategies to ensure the most appropriate tenants or property redesigns, such as layout changes or activating unused space?.

Opportunistic Strategies

An opportunistic strategy is usually the most aggressive investment approach, targeting properties that require extensive development or restructuring. These investments are high risk but offer the potential for the highest returns.

• Risk Level: High
• Returns: Perhaps over 20 per cent annually. While no guarantee of future outcomes, we’ve achieved total returns of 100 per cent in under two years.
• Ideal for: Investors with a high-risk tolerance and substantial capital reserves

Opportunistic properties may include distressed assets, vacant buildings or undeveloped land, requiring significant expertise and capital to unlock their value.

Choosing the right strategy

The most appropriate commercial property investment strategy for you depends on several factors, like your risk tolerance, investment goals and available capital. Here’s how to align your strategy with your investment goals:

1. Assess your risk tolerance: How much risk are you willing to accept? Core/conservative and core-plus strategies might be more suitable for risk-averse investors, while value-add and opportunistic strategies are likely to attract those willing to accept higher risks for potentially greater rewards.
2. Determine your most comfortable capital outlay: While commercial property usually comes with a high price tag, additional funds will be required depending on the strategy an investor takes. Core investments may need substantial upfront capital but offer stable returns, whereas value-add and opportunistic investments can start with lower entry costs but require significant funding over time for improvements, leasing campaigns and general upkeep.
3. Understand market conditions: Knowledge is king in real estate investment, and investors can stand taller than their competitors in the field by researching local market trends to identify areas with high demand and growth potential.
4. Leverage expertise: Engage with professionals who have a deep understanding of the commercial real estate market. This might even include investing alongside a property investment company offering unlisted property trusts.

Why choose Properties & Pathways?

At Properties & Pathways, we merge our extensive property investment knowledge with proven investment strategies. The result? Reliable passive income and capital growth opportunities.

Whether you are a novice investor or an experienced commercial landlord looking for a set-and-forget investment, we offer professionally managed unlisted property trusts with specific investment strategies. Join us on the journey to prosperity. Get in touch with us today.