Residential property typically has a lower capital price compared to the other commercial real estate classes. A commercial office, industrial or retail asset typically requires significantly more capital to acquire and maintain. As such, direct investment in commercial property is undertaken by a fewer number of investors who have the required knowledge and financial capacity to purchase multi-million-dollar assets; and the operational capacity to undertake the day-to-day management.
The lease profiles between residential and commercial are markedly different. Commercial real estate leases are usually longer, typically ranging from three to 20 years. These commercial leases usually benefit from fixed annual or market related annual rental increases.
Commercial property leases tend to be to quality tenants which generally have low risks of defaulting. These include tenants such as Commonwealth or State government agencies or well-regarded corporations. Good managers undertake comprehensive tenant analysis and target quality tenants through economic cycles.
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