Commercial property has the potential to deliver both reliable passive income and long-term capital growth. However, while the rewards can be significant, any wise investor knows that all investments come with their share of risks. We believe in maximising returns by minimising unnecessary risk—a philosophy that lies at the core of what we call risk-adjusted investments (as opposed to low risk investments). This approach allows us to carefully balance reward with resilience, ensuring we not only grow wealth but also protect it.
The inherent risks of commercial property investment
Investing in commercial property offers advantages, but it’s not without challenges. Key risks include tenant turnover, property maintenance, and external economic factors such as inflation or interest rate changes. Without careful management, these risks can affect both the consistency of income and the long-term value of the investment. However, while some risks are uncontrollable, others can be mitigated through careful selection, proactive management, and strategic planning.
The importance of due diligence
We prioritise thorough due diligence when selecting properties for our portfolio. Every year, we review over 300 properties, carefully assessing their risk profiles and strengths including factors such as location, demand and potential tenant mix. Following comprehensive review, only a select few properties will emerge as potential investment opportunities. Our goal is to identify properties where significant value can be created, producing stable returns, in addition to the resilience to withstand market fluctuations.
We focus on properties in essential industries—such as healthcare, childcare, and retail brands providing essential goods and services—where demand remains steady, even in economic downturns. This targeted approach reduces risk exposure and offers a foundation of stability for our investors.
What we can control
Our hands-on management approach allows us to control several critical elements of each investment, building resilience into our property portfolio:
- Tenant Selection: We partner with financially secure, established tenants in high-demand, non-discretionary sectors. By doing so, we reduce the likelihood of tenant default and ensure a steady rental income for our investors.
- Outgoings & Leases: Structuring leases to pass on outgoings to tenants minimises costs for investors and provides more predictable returns. We also aim for long-term lease agreements, which enhance stability and reduce the impact of tenant turnover.
- Building Maintenance: We take a proactive approach to property maintenance, conducting regular inspections and addressing repairs swiftly. This maintains property value and keeps tenants satisfied, supporting long-term tenancy and minimising vacancy periods or underperforming assets.
What we can’t control
Certain factors fall outside of our control but still affect the performance of commercial property investments. By acknowledging these risks, we take additional steps to protect our investors’ interests.
- Interest Rates: Interest rate fluctuations impact borrowing costs and investor returns. Though we can’t control rates, our portfolio diversification and lease structuring strategies help balance these effects. For example, many of our leases have structured annual increases to rents, either by CPI or fixed annual increases.
- Tenant Financial Stability: While we carefully review prospective tenants, unexpected economic shifts can affect their financial health. This is why we focus on non-discretionary sectors, where tenant demand is more likely to remain stable during economic uncertainty e.g medical centres and allied health providers, childcare centres, supermarkets etc.
Building resilience against uncontrollable factors Our commitment to risk-adjusted co-investment opportunities is underpinned by a meticulous approach to property selection and active asset management. We hope that this article has brought transparency to the notion of low risk investments, risk factors in commercial property and confidence in the mechanisms that are employed to manage risk. Our current portfolio is returning an impressive total average return of 14.5% pa – a testament to our effective balance of risk vs return.
