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Commercial real estate can come with risks

On Behalf of | Jul 6, 2023 | Commercial real estate issues |

Commercial properties tend to yield more than residential leases. They have higher income potential. Tenants leasing commercial property typically occupy the property for extended periods, meaning the contracts involved with commercial real estate offer more income stability. These types of properties can also appreciate at a faster and higher rate. However, purchasing and owning commercial real estate comes with risks associated with any similar substantial investments.

What are the risks involved with owning commercial real estate?

Market valuations for commercial properties can change drastically because the financial conditions of the economy can directly impact businesses. In fact, the commercial real estate market declined in the last five years with the recent global unrest. Furthermore, the government heavily regulates the market. A commercial property owner can face business licensing, zoning and permit procurement procedures. Here are other risks commercial property owners should consider:

  • Higher taxes on commercial real estate property than residential property
  • Tenant demands can be more extensive
  • Unexpected vacancies due to tenant bankruptcy
  • Commercial property can be more difficult to sell because of a more costly and complicated transfer process
  • Commercial property owners may need to spend more to maintain their property
  • Premises liability issues

Commercial property owners can mitigate such risks with proper documentation and legal guidance. The rules and regulations can change as rapidly as the market interest rates. As a commercial property owner, you should know how these changes and compliance issues can affect you.

How can a commercial real estate owner manage risks?

Entrepreneurs and business owners involved in commercial property deals and negotiations can effectively manage these risks if they know how to navigate the laws and regulations governing commercial real estate. Any business transaction can be complex, especially with significant assets like real estate. You must stay on top of things and address issues before they begin. It all boils down to legal protection and know-how.