Why Buy Commercial Property?

Real Estate Agent Showing Commercial Property

Are you an entrepreneur or small business owner thinking about buying or renting commercial property in Canada? Buying and renting commercial property both have their pros and cons. Buying commercial property can be a good financial investment in the long run – if you’re hesitating to buy a commercial property this year, here are the factors worth considering.

The Types of Commercial Properties

There are four main subcategories of commercial real estate:

  1. Office property
  2. Retail property
  3. Multi-family units
  4. Industrial property
Closeup view of real estate agent and his client shaking hands near new house

Office spaces are used for business operations and often don’t require space for customer interaction, and they can range in size depending on how many employees work for the company. Typically, office space is dedicated to one business but it can house many different businesses. 

Retail spaces are used for shops and restaurants that require customer interaction. This can include a mall or a single-story commercial building. These properties can also range in size depending on the business. Multi-family units house many different families. This kind of property is a mix between residential and commercial. Industrial spaces are used for production, manufacturing, processing and warehousing businesses. Investing in any one of these types of commercial properties can be advantageous according to your business needs. A commercial Realtor® can help you assess what type is right for you. 

The Size Of The Commercial Space

The size of the space you need for your business is one of the most important factors in the purchasing process. In 2020, office space vacancies rose, but as offices eventually opened-up throughout the year, many businesses needed more space to adhere to social distancing rules. In 2017, the average square footage per employee was 151. This may increase as businesses reopen and look to space out their employees. On the other hand, some companies downsized their business to save money. If you are looking to buy a new commercial property, you will need to consider the size of the property and whether it can allow your business to function as you wish.

Rising Rental Costs

According to the CBRE’s report on Canadian Commercial Real Estate, prime office rental prices rose across the country between 2018 and 2019. In Toronto, the cost of prime office rent increased by 10%, industrial rental prices rose by 20.6%, and multifamily rental prices rose by 6.0%. Back in 2019, the cost to lease increased and in 2021 costs are expected to continue to increase. 

Office space for rent

Along with rising rent costs, tenants are also responsible for monthly retail insurance, property taxes, utilities, and maintenance fees. As a result, monthly rent payments may actually exceed mortgage payments. Rent costs can also rise according to the state of the real estate market. Mortgage payments on the other hand, are fixed, so the business owner won’t have to worry about increases and can budget accordingly. 

When a business owner buys a commercial space, they typically occupy at least 51% of it. Business owners may be able to rent out leftover space depending on how large the business is to create a secondary income stream. This is a potential advantage to buying a commercial space. 

Equity Building and Appreciation Benefits

Businessman counts a money in office. Close up view

Real estate is widely viewed as an ideal investment. When business owners take out a loan to purchase, their down payment and monthly payments will build equity. Equity is the difference between the market value of the property and how much is owed on a mortgage. This will help build the overall value of a business. 

The buyer can also benefit from capital appreciation. Most commercial properties will appreciate over time if the property and the area surrounding it are well maintained. A business owner who rents their property will not benefit from appreciation or build equity.

Should You Buy Commercial Property?

Office Building For Sale

You, as the business owner, will have to determine whether buying is the best option for you and your business. If you’re interested in renting out a part of your property, building equity, benefiting from appreciation and having control over your property, buying might be beneficial for you. If you have enough money for the down payment and six months of mortgage payments, you may want to speak with a commercial Realtor® to see what your options are! Leasing, however, may be a better option for you depending on your financial situation and your business goals. A Realtor® can help you assess which option is best for you. 

Phillip Moore is a Commercial and Industrial Realtor®. He has the experience to help you in the process of buying a commercial property. With years of experience in commercial real estate, he can give you advice on property searches, financing, and budgeting. Contact Phillip Moore today to see how he can help you find your next commercial space.