Commercial Property Financing

Investing in commercial properties is no longer for the big boys such as large institutions and corporations. Individuals who have experienced the benefits of residential property investment, have now moved into commercial property investment as well.

Financing for commercial properties is available from banks, mortgage companies and financial institutions. The types of properties eligible for financing for commercial properties are retail, industrial, office and leisure. Retail commercial properties refer to shopping centers or supermarkets, whereas industrial properties are warehouses or factories. Office commercial properties are office blocks and business parks, and leisure commercial properties refer to hotels, amusement or leisure parks.

There are substantial benefits of investing in a commercial property. Commercial properties are often let out on long term basis from 10 to 15 years. The usual cumbersome tasks of repairs and maintenance in commercial rental are the responsibilities of the tenants.

Furthermore, commercial property rental is higher than residential rental. Commercial properties typically provide steady capital growth with high income return. The investment is more secure as short term fluctuations in commercial properties are less detrimental to the property value.

However with its benefits, there are accompanying risks in commercial property investment. As there is a greater lending risk associated with commercial properties, a larger initial investment or deposit is required. Generally commercial property financing rates are higher than on residential properties.

The location of the property contributes to its commercial value, which however, could change from the time of the construction till completion. Changing business landscape, construction of new properties nearby or market trends could impact the value of the property. Market risks are inevitable and commercial properties follow the cycles of demand and supply, which will affect their value. Rental income and tenant occupancy rate also contribute to the value of a commercial property.