You want to start investing. But you want to go for something more "original" than residential property. Provided, of course, that it's just as profitable. Why not turn to commercial premises? It's a booming sector that can offer great opportunities. If you take certain precautions, you can be sure of making a good deal.
Stores and boutiques of all kinds, offices, service activities, doctors' surgeries... In shopping areas or city centers. So many opportunities to seize if you want to diversify your assets and invest in an up-and-coming sector. They can be as profitable, or even more so, than a conventional real estate investment. The market for "commercial walls" or "store walls" is still fairly confidential. Take advantage of the opportunities that present themselves, and of the specific benefits of this type of investment.
Focus on popular locations
The secret of good profitability lies in location. And this is even truer when it comes to commercial premises. A poorly located establishment will attract no tenants, few customers and insufficient revenue. Your profitability will depend 90% on your choice of location. So it's more than essential! It's strategic: you need to be seen. Choose dynamic neighborhoods. Main arteries, busy streets, pedestrian zones and their adjacent streets, shopping areas, superstore galleries... are all to be preferred. With a bus, streetcar or metro stop in the immediate vicinity. Accessibility counts, as does ease of parking. Finally, if you can, choose a location not far from a shopping mall or a well-known brand that attracts shoppers. In turn, you'll reap the benefits of their attractiveness. Also keep an eye out for "up-and-coming" neighborhoods, which may offer good prospects in the event of new developments, housing construction, public transport...
It's mathematical and unstoppable! The busier the location, the more customers will increase your tenant's sales. This is reflected in the rents received, ensuring the long-term future of your establishment and your investment.
Not to be confused with buying goodwill
Investing in commercial premises involves buying a business and then renting it out. Unlike goodwill, which is owned by the merchant, not the investor.
Benefit from the flexibility of a commercial lease
When you invest in commercial premises, you sign a commercial lease that complies with very specific rules. More flexible, it is also more secure than a residential lease. The contract lasts for nine years. The tenant cannot decide to end the lease at any time. It can only be terminated every three years, but not before. This is why the contract is also called a "3-6-9 lease". This will reassure you that there will be a tenant on the premises throughout this period, and that the business will remain stable. It will also give you visibility on the rents collected and the expected profitability over the longer term. Rents will be less likely to go unpaid than under a standard residential lease. And if you're unfortunate enough to find yourself in such a situation, remember that commercial leases are governed by company law. The procedure for recovering the premises is therefore easier and quicker to implement than a notice of termination under a conventional lease. And there's no winter truce to prevent eviction of tenants during the winter months.
Another special feature of a commercial lease is that it can be freely drafted. You are free to define the conditions of the lease, and in particular the allocation of expenses and charges. For example, the landlord can ask his tenant to pay the property tax, as well as most maintenance and improvement work. This is not possible under a residential lease.
High profitability
On average, an investment in commercial premises can generate an annual return of between 4% and 10%, provided you target the type of activity carried out by your future tenant. That's almost 2 times more than for residential properties, where rates of return tend to be between 2% and 5%.
Empty or occupied: that's the question
In your search for the ideal location, you may be faced with a dilemma. Is it better to buy premises where your future tenant is already in place, or to start from scratch?
Buying "occupied" commercial premises offers two major advantages. Firstly, you don't have to worry about the rent, and you can estimate the profitability right from the outset. Secondly, the tenant is already "in place". So there's no risk of the premises going unoccupied. You also benefit from a current commercial lease, which secures your project and facilitates your loan application. Secondly, your future tenant is well known and has already built up a clientele. So many fewer worries and risks.
If you prefer to buy empty (which is often the case for a business located in a new building), you'll need to estimate the rent by researching information on comparable premises (location, surface area, condition of the property, professional sector, etc.) to ensure the potential profitability of the investment. You'll also need to carefully select the business you want to run from the premises, and find the ideal tenant.
A question of price
Unlike residential property, the price of commercial premises is less subject to fluctuations in the real estate market. The most important parameter for a bare-bones premises purchase is the profitability it will generate. In other words, the price will depend on the rent, not the price perm2. On the other hand, when you invest in premises that are already occupied, you know what the rent will be, and therefore what the return will be. This makes it easier to buy at the right price, and to project the profitability of the operation.
The purchase price of the premises must also take into account what are known as "local marketing factors". This refers to the commercial environment, which can influence the rental value, for example the creation of a parking lot or the development of a pedestrian zone.
Where residential property is dependent on the tension between supply and demand in a targeted area, the commercial property market is linked to the profitability of your tenant's business, and therefore its ability to pay rents.
Marie-Christine Ménoire