When looking to diversify their wealth, investors often think of shares, bonds or residential property. Commercial real estate can also be an interesting investment, particularly for those looking to limit management responsibilities and generate income over the long term.
A retail unit on a well-known shopping street, a supermarket or fast-food chain along a busy access road, or a retail park on the outskirts of a city: commercial real estate is everywhere. As an investment category, however, it is less familiar to the general public. Yet private investors and family-owned businesses also play an important role in this market.
Since its founding in 2020, Avenue Real Estate has specialised in commercial real estate and has built a leading position in retail property investment. Stijn Thomas, co-founder of Avenue Real Estate, explains where the opportunities lie.
1. Limited management
‘Retail properties are often leased on a shell-and-core basis. The tenant fits out the store and is generally responsible for the associated costs, including the cadastral income tax. The owner remains responsible only for the building’s structural envelope, such as the roof. As a result, a retail property requires far less work than a rented apartment. The owner monitors rental payments and takes care of the matters for which they are responsible under the lease, such as repairing a leak.’
2. Longer lease periods
‘Because tenants invest so much themselves, they generally stay for longer than three, six or nine years. They are often professional operators such as Albert Heijn, A.S. Adventure or McDonald’s, who know the market well. They understand the potential of a location and can substantiate their decisions with solid figures. Some retailers have occupied the same premises for well over thirty years.’
‘There are also long-leasehold arrangements that can run for 20 to 50 years, for example at fast-food locations. The yield is lower in such cases, but so are the risks and costs. Rent indexation can also make income more stable and predictable over the long term.’
3. The right location
‘Both city-centre retail properties and out-of-town retail units and retail parks can be interesting investments. The location is more important than the potential tenant. A commercial property in a prime location will generally remain vacant less often and for shorter periods. A property on the Meir, for example, will still be attractive twenty years from now.’
“75 to 80 per cent of retail properties sold are acquired by private investors and family-owned businesses.”
‘The choice between an out-of-town retail unit and a city-centre store depends on the available budget, the desired rental income and the investor’s risk appetite. Above all, it comes down to personal preference and the investor’s profile, as both offer interesting investment opportunities.’
4. Diversification of wealth
‘Commercial real estate does not have to replace other investments; it can complement them. It generally requires more initial capital than purchasing a modest apartment. Investments in this market start at around €700,000 to €800,000, although amounts vary considerably. In return, investors can choose from different types of properties, tenants and lease agreements. The combination of rental income, potential indexation and a long-term outlook makes commercial real estate worth considering for those looking to diversify their wealth.’
5. A stable market with a long-term outlook
‘Around 75 to 80 per cent of the retail properties sold today are acquired by private investors and family-owned businesses. They often take a long-term view and buy with their children’s future in mind. They frequently finance their purchases with their own funds, making them less dependent on loans and interest rate increases. This helps keep the Belgian market relatively stable.’
‘Nevertheless, it remains important to assess a property’s location, rental income and price critically. Stable investing starts with knowing what you are buying.’
STIJN THOMAS
Co-founder of Avenue Real Estate
