Real estate investors who’ve been in the business for a reasonable amount of time may consider expanding their portfolios with commercial real estate. Its returns are exponentially greater than that of residential real estate. However, what hinders most investors from pursuing commercial real estate are the challenges that come with this property type.
In this post, we’ll tackle some of the most common challenges that come with owning a commercial property. Plus, we’ll share a few tried-and-tested commercial property management tips so you can find success as a Florida real estate investor.
What Is Considered a Commercial Property?
First thing first, what is a commercial property? What sets commercial real estate apart from residential real estate is that, more than anything, it’s designed to generate income, either through rent or capital gains. Commercial real estate comes in many forms, such as offices, industrial properties, multi-family properties (rental properties with five or more units), and retail properties.
Those types of commercial properties can be further divided by class. For example, Class A commercial properties are newly built properties located in the city’s most desirable locations. Class B properties, on the other hand, are properties that are well-maintained but a bit outdated (nothing a professional property management company can’t improve).
If you want to invest in commercial real estate, it’s imperative to consult an investment advisor. They can help you understand the challenges that come with each property type. Bear in mind that commercial real estate isn’t a small investment, so don’t commit without doing your due diligence.
What Are the Common Challenges in Commercial Property Management?
Challenges will vary by property type. For example, one of the main challenges of a mall owner is to boost foot traffic – that’s something an office owner wouldn’t have to worry about. But to give you an idea of what general challenges you’ll encounter, we’ve put together this list.
#1. Commercial Properties Are Time-Consuming and Demanding
Get ready to step up your game. There’ll be a lot more on your plate when you buy a commercial property. You’ll be dealing with more tenants, more rental contracts, more concerns, and more maintenance. Put simply, your list of to-dos will grow by a mile. If you aren’t willing to do the work, or if you’re prone to putting off your tasks, how else will you be able to profit?
Our Commercial Property Management Tip: Of course, you can always hire a commercial property management company, but it pays to be even a bit involved, too. Your company may deal with the nitty-gritty, but that doesn’t mean you can be completely detached from the day-to-day operations.
#2. Commercial Properties Are Affected by the Economy
There’s a reason why residential real estate is safer – it’s not as volatile as other real estate investments. This is because there will always be a demand for residential real estate. Commercial real estate, on the other hand, is not as resilient. It’s more likely to falter due to market fluctuations. We’ve seen this happen at the peak of the COVID-19 pandemic when many commercial spaces closed down due to low demand.
Our Commercial Property Management Tip: To weather that storm, you must be able to target more flexible tenants with businesses that aren’t at the mercy of the local market. These are businesses that are sure to stick around when the market takes a downturn.
#3. More Challenging to Find Commercial Tenants
One of the challenges that come with commercial properties is finding the right tenants. It can take a significant amount of time to select and screen tenants that not only suit your location, but also the culture of your commercial business. And since it’s time-consuming, that means you’ll experience some “slow” periods wherein you won’t be earning any money.
However, this doesn’t mean you should find tenants as fast as you can. Commercial properties come with long-term leases, so you must make sure your tenants are aligned with your rental business’ brand and your goals. If you rent to the first tenant you find, they may not be the most suitable one for your business.
Our Commercial Property Management Tip: To mitigate this, you must stay up-to-date with the trends. Find out what features today’s tenants prefer – such as transportation, space use, etc. – so you can modify your property to meet their needs. In that way, you can easily target tenants who’ll rent with you for the long run. Consider partnering with a commercial property management company that can identify what amenities your potential tenants are interested in.
#4. Commercial Contracts Are More Complicated
If you’ve ever invested in residential real estate, you’ll probably know that residential leases are no-brainers. In most cases, you can reuse contracts or download contracts from Google. There’s no need to vary the terms for every property that you own – unless, of course, your property is in a community with very specific rules.
Commercial rental contracts are more complicated, as tenants will want to negotiate everything.
Our Commercial Property Management Tip: Prepare yourself for the stressful task of drafting commercial contracts by partnering with a real estate lawyer. Or, you could opt to hire a commercial property management company with its own in-house team of real estate lawyers.
#5. Commercial Properties Carry More Risks
While you’ll be liable for accidents that happen on your residential rental property, there’s a very low chance of that happening, as there are only a few people who live there. Commercial properties, on the other hand, welcome more people each day. This means that more people can get hurt, hurt others, or do serious damage to your property. Mall-goers can slip on the ice, cars can crash into each other in the parking lot, people can steal from your store, and the list goes on.
Our Commercial Property Management Tip: To prevent accidents, partner with a company that has a comprehensive preventive maintenance plan.
Commercial Property Management Done Right
Commercial real estate’s challenges may seem daunting, but don’t let them discourage you. Remember that you don’t have to deal with those situations by yourself. When you choose Luxury Property Care as your partner in commercial property management, you’ll be able to benefit from our years’ worth of experience and expertise. We’ll successfully run your commercial real estate investment for you.
For more commercial property management tips, check out our other articles. You could also consult a one-on-one consultation with our commercial property management team by calling (561) 944 -2992 or by completing our contact form.