3 Things You Need to Know About Investing in Commercial Retail Space

When it comes to buying and renting commercial real estate buildings to small business tenants, there are various types of buildings you can invest in. One type of building you can invest in is retail space. Retail spaces are buildings where goods or services are sold directly to the public. Retail spaces do not include restaurants or other food-serving establishments.

1. Takes Time to Find Tenants

First, when you are buying commercial retail space, you need to be aware that it will take time to find tenants. Purchasing retail space isn't like purchasing a single-family home; the potential pool of tenants will be much smaller.

With unfilled retail property, you will need to find a business that needs the amount of space your building can offer them. You also need to find a tenant who desires to be located where your building is at.

It can take a while to find the right tenant as your space has to fit with their business needs and plans.

2. Tenants Tend to Sign Up for Long-Term Leases

Second, the good news is that once you find a tenant, they will more than likely be around for a while. With residential properties, most tenants are looking to sign six-to-twelve-month leases. With a commercial retail property, business owners are more motivated by the idea of having a consistent location to build up their business and are more likely to sign a multi-year lease.

It is not unheard of for tenants to sign leases for a space that is a decade long with commercial retail space. If the tenant is going to have to invest capital in customizing the space to meet their needs, they will be motivated to sign a long lease.

Having a long lease means that you will get consistent income from the property for years to come, which will allow you to make a good return on your investment.

3. Economic Conditions Can Impact Market Value 

The value of retail properties is closely tied to the performance of the economy. Retail properties are more sensitive to market changes than residential properties. During an economic downturn, the actual value of your property may decrease, and you may have to lower your rent to find new tenants. During an economic upturn, the value of your property will increase, and you will enjoy higher market rents from new tenants. Being so connected to the overall economy can be both positive and negative.

When it comes to investing in commercial retail space, you need to be aware that it will take time to find tenants, but once you find a tenant and sign them to a long-term lease, you will have a steady and reliable source of income. Retail property value and rent potential are more directly tied to the economy's health than other types of properties you can invest in. It is essential to understand these factors before investing in commercial real estate property.