A commercial real estate investment is one that is used for business purposes only. The commercial real estate market has become very popular in Kenya because of the tremendous returns that can be achieved.
Commercial real estate investment returns are based on the returns of the profitability per square foot, unlike a residential real estate property. These investments require larger capital injections and higher down payments.
Despite that, there are still many commercial real estate properties coming up in Upper hill, Westlands, Lavington, Langata, Karen, Kilimani, Ngong road and Mombasa road clearly demonstrating the lucrative commercial real estate industry. This is a clear indication that the industry has been flourishing.
Over the years, the value of Kenya’s real estate has continued to rise with the increase of the populations middle class. According to a Cytonn investment property report, the real estate industry has recorded a growth of 6.7% this year. It has consistently outperformed other asset classes over the last 5 years in Kenya.
This growth in the real estate industry has been driven by the huge housing deficit being experienced in Kenya. However, it is important to note that the growth has been in high-end properties without really taking into account the majority of the deficit lies below the middle class.
Despite that, Kenya has still been at the center of international attention as a favorable investment destination in East Africa especially after the Global Entrepreneurship Summit that took place last year in July. Real estate development has been one of the key pillars of investment in Kenya.
Commercial real estate is best suitable for seasoned investors. Some of the reasons being that there are usually heavy regulations imposed by the local government authorities for commercial properties that can be quite cumbersome for first-time investors.
A commercial real estate investment refers to retail buildings, office buildings, warehouses, industrial buildings, apartment buildings and mixed-use buildings.
What You Must Know Before You Invest In The Commercial Real Estate Industry
Just like any other form of investment, there are good ways and bad ways to go about it. A commercial real estate investment requires you to have a succinct plan and strategy. The lack of caution and planning can result in problems arising down the road.
Some of the things you can do before investing in a corporate real estate investment are:
- Learn the craft of real estate investment: Successful commercial real estate investors are seasoned in the real estate field and have learned how to not only identify a good deal but on how to maximize its potential.
- Understand commercial real estate terminologies: Familiarize yourself with commercial real estate terminologies and keep current on the latest news and trends in the industry.
- Verify the investment opportunity: It is important to check the validity of the investment with a legal officer taking note of any penalties that may be associated with the property.
- Plan how to finance the investment: By this time you should have mapped out a clear plan of how you are going to finance the property either via a financial institution or on your own. Commercial real estate investments require large sums of capital.
- Understand how to select a great location: When it comes to a commercial site it is critical to choose one that will be able to provide you with lucrative returns.
- Have an exit strategy: Because of the heavy capital injection that a commercial real estate investment will entail, it is best to have an exit strategy that will be able to get you out so as not to get you extreme losses. You must be prepared for the worst case scenario.
- Consult a professional: In order to make the best decision, make sure you consult a professional before you get into a commercial real estate investment. You can inquire from a seasoned investor or a professional in the real estate business realms. Sometimes, seeking professional advice can just exactly what you need when it comes to getting into the right investment.
It has been proven that a commercial real estate investment offers more reliable income than residential property investment in Kenya. This is because the lease agreements with the tenants are usually for periods not less than five years and with a rent increment clause that ensures the owner gets incremental income from the property over the lease period.
However, you must take note that these investments are capital intensive thus require a certain degree of expertise and planning.
Choosing to buy or build a corporate real estate investment is a big commitment for anyone but it is definitely a profitable investment that is worth your time and resources. All the best!
Whatever you decide, remember thorough preparation is key. What are your thoughts on investing in corporate real estate investments over residential real estate investments?
Do you think the capital injections are worth going into the investment on your own? Please leave us your comments below.