Sourcing the best investments for your SMSF portfolio is front of mind for most SMSF trustees. For those that are looking to add an investment property to their portfolio, considering commercial properties can open the door to solid income yield and capital growth potential for their member’s retirement savings.
If you’re looking at your options for property investment within your self-managed super fund, here are some of the commercial investment opportunities to consider.
The appeal of commercial property investment for SMSFs
Commercial property investing has the same appeal for investors both inside and outside the superannuation environment, as it holds a reputation for strong income yield. The rental income received on a commercial investment property is attractive for SMSF trustees looking to achieve a strong positive cash flow for their self-managed super funds. Commercial yields are historically stronger than those offered by residential real estate. There may also be some tax benefits with holding a commercial property over residential properties.
For business owners, they are often drawn by the ability for their SMSF to effectively purchase a business property, warehouse space or office space for their own business. However, care must be taken to ensure that the SMSF remains compliant with the sole purpose test at all times.
The demand for commercial properties
With interest rates a focal point, commercial investors are performing even more due diligence when assessing their investment options, particularly against the residential market. At the end of 2022, there was incredibly strong commercial demand, and while the demand remains, economic conditions mean that commercial property investors are now looking at different opportunities to ensure that the market value of their investment is able to be retained into the long term.
Where to look in the commercial property market
While post-COVID trends (such as a large scale movement for remote working) did affect the demand for commercial office spaces, particularly in Melbourne and Sydney, other trends, such as the surge in online spending, have created more opportunities in other areas of the commercial market, such as in industrial properties.
Commercial real estate in non-discretionary sectors
While the rise in interest rates is likely to impact consumer spending, essential services such as the medical sector typically remain unaffected. While retail properties could experience a decline, Australia’s aging population and need for medical services, despite the cost of living, could see medical suites possess a stronger investment opportunity over a retail space.
Buying a commercial building in the industrial sector is another opportunity that commercial property investors are considering in 2023. The rise in online shopping throughout the pandemic created a surge in e-commerce businesses, requiring industrial spaces. In fact, the rental income from industrial properties was up 21.6% in the year leading up to late 2022, as reported by Colliers.
Eco-friendly office spaces
Sustainability is a prominent social movement that also impacts businesses through their Environmental, Social and Governance (ESG) initiatives. Purchasing an eco-friendly office area could not only align with your own sustainable investment preferences, but will appeal to potential tenants endeavouring to access more eco-friendly office spaces.
Access the correct lending structure when buying commercial property through your SMSF
Many investors understand the benefits of adding commercial property as an asset class to their portfolio, however, are inexperienced when it comes to accessing SMSF commercial property loans. Every SMSF loan, whether for commercial property or residential property, needs to be established under a recourse borrowing arrangement (LRBA).
At SMSF Loan Experts, we are experienced at finding the best LRBA structure and lending solution for your commercial property. Reach out to our team to find out more about how we can help underpin the finance you need to make your commercial property investment journey a success.