Shining a light on commercial property investment

Residential property has long been a go-to for those wanting to invest in a tangible asset, but times are a-changin’.

The past year has seen residential property values skyrocket out of the reach of many investors. Running parallel to this are wide-reaching legislative and regulatory changes, many established to dampen the residential property market, which is making life increasingly hard for those who invest in houses.

Many investors have been left scratching their heads and wondering what to do with the money languishing in the bank. This is where commercial property can be a godsend.

While not as widely understood as residential investment, commercial property provides investors with a similar “bricks and mortar” style tangible investment. Commercial property can be a strong-performing investment that, through a fund, can provide a regular monthly income and the potential for capital gains.

It has proved to be resilient during periods of major economic instability including Covid-19 and, generally isn’t subject to the same sentiment-based volatility investors experience in the share market.

So, what exactly is a commercial property fund?

Rich Lyons is the retail investment manager for Oyster Property Group (Oyster), a leading commercial property and fund manager. He says those who are new to investing are often confused about what is involved when it comes to commercial investment.

In a nutshell, it’s about purchasing commercial property in “bite-sized” amounts alongside other investors – without the hefty outlay required to get into residential property.

Oyster has been in business for more than 20 years and is well regarded as a “one-stop-shop” for commercial property investment.

The group purchases quality properties of significant scale in the office, industrial and large format retail sectors, which are managed by a team of dedicated in-house property managers. They then package up offerings for investors and manage the funds on their behalf.

With an entry point of as little as $10,000 and cash distributions in the realm of four-to-six percent p.a., payable monthly, it’s an attractive option for investors.

Lyons explains that Oyster’s commercial property buying criteria is stringent. In the case of large format retail, it targets premises occupied by supermarkets, and DIY stores, for example, that can stay productive in tough times. Covid-19 provides a prime example of adaptability by larger retailers – while small retail had to shut their doors throughout recent lockdowns, supermarkets remained open for business.

And DIY stores, while shut during level four, could easily pivot to offer click-and-collect services under level three. The queues of cars in the carparks of stores such as Mitre 10 are a testament to Kiwi’s ongoing love of DIY.

“This really reinforced our convictions that large format retail is a sought-after option as occupiers are able to weather the storms,” says Lyons.

Oyster’s industrial property buying strategy is equally robust. “We look for properties that are located in sought-after locations, close to airports and state highways, where appropriately zoned land is in tight supply,” Lyons explains.

“The overall investment philosophy for Oyster is to target quality commercial property that has enduring occupier demand, is well located and close to amenities, and has reputable tenants.”

Oyster has three key funds: Oyster Direct Property Fund, Oyster Industrial and the Oyster Large Format Retail Fund.

The Oyster Direct Property Fund is an unlisted diversified commercial portfolio PIE fund that is regularly open to investors and provides exposure to over $1.1 billion of commercial property. This fund has a minimum investment of $10,000 and a diversified portfolio that is likely to appeal to investors who like to spread their risk.

Oyster Industrial, launched in 2019, offers a pureplay industrial property portfolio and currently contains six properties leased to quality tenants. Oyster Industrial opens for an investment as and when it acquires new property. The minimum investment is generally around $50,000. 

Oyster Large Format Retail Fund, launched by Oyster in 2021, aims to provide a diversified exposure of large format retail property over time to investors. With a focus on supermarkets and DIY stores (which have proven to be strong performers), it has a minimum investment of $50,000, with offerings listed on the website.

Lyons explains that key benefits of investing in Oyster funds are access to a monthly income derived from assets that are generally out of reach to everyday investors, backed by hands-on management by a team of seasoned experts.

He said commercial property generates passive monthly income for investors – this frequency of income is something that is not typically available through the share market – and offers a far lower entry point than residential property (you certainly couldn’t find anything for $10,000).

“Opting to invest in commercial property through a team of experts like at Oyster also cuts out the hassle of needing to manage tenants,” Lyons said.

“So, for people who are looking for an investment that will help to supplement their other sources of income, or those who a looking for a long term stable investment option, Oyster’s unlisted commercial property funds are a great option.”