“Why online shopping is driving some business to the wall but it's not touching my commercial property portfolio”
There’s been a lot of talk recently about the impact of online shopping on Australia’s commercial property market. The naysayers would have you believe that e-commerce will sound the death knell for Aussie retailers and that commercial property is a risky asset class as a result.
It’s hard to deny that some businesses – such as clothing outlets, bookstores and speciality shops – have been feeling the pinch…
… and you don’t need to look too far in my home town of Byron Bay for evidence of this.
This trend may seem likely to continue given the boffins at National Australia Bank predict that 11% of all transactions will be made online within a few years.
But what does that actually mean for commercial property?
With the eyes of 33 years of experience I just can’t see how e-commerce will ever beat down brick and mortar business. Not if you are investing in the right industries…
Think about it: when was the last time you got a haircut online?
Or purchased a coffee over the internet?
The point I’m trying to make is that customers will always head to their favourite café for lunch, grab vino from the bottle shop on the corner or get Jim at the local garage to fix their dodgy station wagon.
There’s a whole host of businesses that remain unaffected by online retail, particularly where human interaction is required.
As a prospective landlord these are the tenants you want.
Choosing the right commercial asset: it pays to remain positive
Now more than ever, it’s possible to set up a portfolio of investment properties that is immediately cash flow positive. The key lies in focusing upon commercial property classes that are safe harbours from the online shopping storm.
Here are the sort of things I’m talking about
- Service stations
- Food and beverage retailers
- Bottle shops
- Healthcare providers (including dental clinics, doctor’s surgeries and pathology centres)
- Hardware, DIY and gardening stores
- High end fashion outlets
These assets are high yielding which means they offer a decent return on your investment.
It’s not always as simple as buying the local butcher shop (although that can sometimes work too)
There’s a whole lot of other factors you need to consider.
- The property’s rental term,
- Options for renewal of the lease,
- Loan to value ratio,
- Whether or not the tenant is financially ship-shape,
- The location of the business,
- Vacancy rate,
- Redevelopment potential
- And the likelihood of finding a new tenant should the proverbial hit the fan.
Even though online shopping has exploded in recent years shops, customers still like face to face customer service and business owners still like centralised locations to attract foot traffic.
Larger online businesses still require offices to run their business, and when it comes to ecommerce, goog e can change their search algorithms and on online shop can disappear overnight…
But your corner store is always going to stay… well, on the corner, and there’s a need for that, that’s not going away.
Your Commercial Property Investment Blueprint
In case you haven’t already clicked, online shopping has by no means increased the riskiness of commercial property investment. My portfolio has remained strong and my returns have actually improved in recent years. But it’s vital to learn all that you can about the commercial market before wading in for yourself.
In order to stay ahead of the pack, investors need to pick the right properties, in the right areas, in the right industries. You’ve got to know what you can and can’t do with the property and how to push negotiations to create a win-win.
The goal is to create a long term portfolio that derives rental income from industries that won’t fall victim to online shopping. That’s why it’s more important than ever to do your homework and receive the right advice before rushing out and buying a commercial property.
To learn more about my strategy, I offer the Commercial Property Cash Flow Blueprint to assist with choosing and purchasing the right asset to suit your needs.