Having looked at some specifics and characteristics of commercial property, it is timely that we consider the nature of it as an investment.
Having dealt with the product for 25 years, it seems to me that there are several inescapable characteristics of commercial property as a form of investment.

Firstly, it is illiquid by nature and by this I simply mean that, unlike shares for example, you cannot simply decide to put on an exchange and expect to trade it that day. As with residential property you must find a willing buyer for your product at your price and on your terms and conditions. This may take a week, a month, or in a really depressed market, a year. So if liquidity is important to you, you need to be aware of this trait. Secondly, it is typically a long-term investment by nature. This is a fact which is often ignored by investors who mistakenly view it as something to invest in for just a few years. In doing so, they fail to reap the
long-term gains through regular rental reviews, rising land values and if your timing is right, a lowering of capitalisation rates.
The long-term nature of the investment is underlined at present as we stand in the shadows of a recession. This, clearly, would not be the ideal time to consider selling your commercial property in terms of maximising your potential sale price. A property being sold today at an 8.5 per cent yield may very well have sold at a 7.5 per cent yield at the height of the recent boon in 2007. While a 1 per cent difference in yield may not sound too much, the difference would be $156,800 on a property with a rental of $100,000per annum and so it becomes readily apparent that small variation in yields will seriously impact on value.
The issue of timing brings me to the third characteristic of commercial property and that is that it is cyclical in nature. We have just witnessed the result of the latest boom and bust cycle and still the lessons are not learnt. In particular, when a boom starts to gather momentum there is always an army of developers wanting to create more product. However, as has just happened, the bust phase arrives with a vengeance – these same developers are caught in the full glare of unwanted media attention as their various projects tumble in domino fashion.
Please do not misunderstand my direction here, I am not having a swipe at developers as a group as I think they add much to our industry. Rather, I am making the point that somehow many of them have missed the vital long-term nature of what we are dealing with and that it is definitely not speculative at the best of times.
Commercial property is really no different to shares as an investment in the sense that it will have its ups and downs as it goes through its cycles, but at the end of a decent length of time, say 20 to 30 years it will have provided an investor with a reasonable return. The trick is to see the times for what they are – just another part of the cycle.
Next week I will talk about the various options for investing in the commercial property sector. Until then, have a great week.