We work with independent financial advisors

There is limited information for the commercial property investor.  Despite vendor statements, with more or less disclosure depending on the jurisdiction, and registered leases (other than in Victoria), there are many side deals between landlord and tenant and, except in major shopping centres, the trading position of a commercial tenant is difficult to find out.

Tenant demand for commercial property is what economists call a “derived demand” – meaning that the commercial real estate is used in the production of goods or services for sale by the tenant.  Understanding the drivers of the business of the tenant gives insights into the prospects of the tenant and the reliability of the rental stream.  It is not much use having fixed annual increases in rent if the higher rent becomes beyond the capacity of the tenant to pay.

Becoming knowledgeable in the business of particular types of tenants is exploiting the lack of information that pervades commercial property markets.

While Fawkner Property people have long experience in commercial and industrial property broadly, we have developed market leading expertise in motor vehicle fuel and convenience retail, as well as early learning.

One of the risks of commercial property investment is tenant risk.  This includes the risk that:

• The business of the tenant fails and the tenant is unable to continue to honour the lease obligations
• The tenant completes the current term of the lease but does not renew
• And there is a market review and, based on the business of the tenant, the rent reduces

These risks and the way in which Fawkner Property deals with these risks is set out in a separate section of the disclosure document devoted to risks of investing.

There are some important contrasts:

• The syndicate is professionally managed, so you do not need to be involved in hiring managing agents, leasing decisions, capital expenditure decisions, and owners’ corporation meetings.
• Capital expenditure is allowed for by the manager, so you will not need to come forward with more money to upgrade the property.
• If there is a loss, your downside is limited to your investment, whereas in a geared residential investment, the lender has full recourse to your other assets.
• Commercial properties are not subject to residential tenancies legislation, which limits the field of action of the landlord.
• While residential property leases are for a maximum of one year, with a market rent review each year, commercial property leases are longer – sometimes longer than 10 years – and have fixed or CPI increases each year, giving greater certainty of income.
• Dealings with commercial tenants are based on business principles, whereas dealings in relation to the principal place of residence of a tenant can have an emotional overlay.

‍