Is capital growth for commercial property lower than residential?

This is a complete myth. Over the last 10-12 years we’ve seen commercial property double in value, in some cases for specific assets in certain locations they have tripled in value. It’s important to note that there are very similar capital growth drivers in both residential & commercial property such as:

•  Location
•  Scarcity factor
•  Infrastructure improvements
•  Owner occupier appeal
•  Population growth
•  Tightening vacancy rates
•  Renovation/add-value potential
•  Lower/falling interest rates
•  Loosening of lending policies
•  Gentrification
•  Dropping unemployment figures

From the above, you can have your residential hat on, and nod and agree as you read this list, but these drivers also apply to commercial property as well. Both residential & commercial property markets respond to economic improvements, cycles, which in affect are instrumental to influencing consumer sentiment.

The one key difference is that the capital growth of commercial property is directly connected to its rental income. So, increasing or improving the quality of the lease will have a greater overall impact on the commercial asset value. And just like any investment, if you’re thorough with your due diligence and choose the right property, you’ll see growth.