Looking at a classy office building or a ritzy hotel often makes us think how the engineers managed to achieve this marvel, and how lucky are the people who are using this property. When we come to think about the price of the land and structure, we are often at a loss. The investors and brokers are the right people to talk about this as they have all the figures on their fingertips and know about the market conditions inside out. Many naïve individuals are also interested in the sector as they wish to invest their money in a commercial property for sale in Australia for high returns. This is quite common as commercial is any day more profitable than residential. The commercial property segment is vast and encompasses a variety of projects such as office buildings, hotels, retail stores, medical centres, land for commercial farming, warehouses, redevelopment land, malls and much more.
In fact, the commercial real estate market in Australia is going from strength to strength and has witnessed a massive growth in the past few years. The growth per year was recorded at 10.6% from 2012-17 and the revenue was approximately $1.3 billion. The surge in the numbers can be attributed to the increasing demand from office property operators in the last year. Besides, there is a rising need for developed office spaces as the economy is shifting towards service-based industries.Though Australians have earlier shown affinity towards investment in residential property, reports and facts suggest that owning commercial assets is becoming more fruitful. This is because they have a binding nature and are available for longer periods of lease. Also, commercial properties have a higher yield than residential as their capital growth rate is lower. According to the Skyscraper index, Melbourne and Sydney are the fastest growing markets for office spaces with 30 storeys or more.
The world-renowned cities are in high demand for office spaces with the biggest global names trying to set their foot in the territory. In addition, Sydney has the most powerful commercial property market in the country and its high sales figures stand testimony to this fact.
This is an appropriate time to invest in commercial property for lease in Australia. However there is always some risk associated with the sector which can be broadly divided into three categories, namely – office, industrial and retail. These are available at varied locations in different sizes and quality ranging from premium to basic suburban structures. In terms of return on investment, industrial property offers the maximum yield, but it has a lower capital growth rate because it is usually located away from the cities. The yield of office spaces is lower than industrial; however, it is dependent on the quality of the property. Retail offers the lowest yield and needs a higher expenditure. It can get easily affected by the economy. As a buyer, if you wish to purchase a commercial property, it is advisable to pool the money with other investors as the cost is usually very high and garnering returns needs skills and expertise. Basically, yield of a commercial property is nothing but the amount you expect to gain from the property. While planning an investment, you must calculate the yield of the property. However, it does not remain the same for a long time as it is affected by changes in the following factors:
The economy of the city plays a major role in defining the yield. If the economy is good, the place like Sydney will have a number of businesses in operation and new ventures would keep on adding every year. This would increase the demand for office spaces in Sydney where businesses can accommodate their employees and carry out their routine activities ranging from manufacturing to storage and distribution. This would lead to a shortage in the number of available spaces in the busy precincts and in turn would increase the amount of rents leading to high yields. On the other hand, if the city has very low number of businesses and there are many favourable spaces lying vacant, the rent would be less and understandably the yield would be low.
A perfectly positioned property is set to gain higher yields as it will be located in a well-recognised area which is close to other commercial spaces. A strategically located land would be easily accessible by transport and would receive high footfall of customers. Also, the location needs to have all the essential amenities and infrastructure in place like electricity, water, shopping centres, proper roads and parking etc. In addition, the rent varies from city to city and town to town. For example, the rent of real estate is higher in Sydney in comparison to Gold Coast.
Rate of interest
The rate of interest usually goes up when the economy is growing which gives rise to new enterprises that need to be accommodated in the spaces available. This leads to an increase in the rents as well as the cost of the property which lowers the yield. On the other hand, if the interest rates come down then it becomes easier to secure financing which reduces the commercial real estate prices and increases the yield.
Type of tenant
The return from the property also depends on the type of the tenant living on the premises. A commercial land can be occupied by a manufacturer, a retailer, a distributor or a corporate firm. In all the cases the rent would differ even if the size of the property is the same. For example, a manufacturer would pay more than a retailer or a corporate firm.
The implications of taxes should also be a part of your projections of return on investment. A commercial property is liable to pay income tax, Capital Gains Tax (CGT) and Goods and Services Tax (GST). All of these can make an impact on the sale and purchase of the property.
The risk of uncertainty is inevitable with any kind of investment and various factors, and market fluctuations can affect the returns. However, putting your money in commercial property for sale in Australia is a sound decision as it is a robust sector which has been showing definite signs of growth.
Manish is founder of Business2sell Group of Websites.
Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities.
With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent.
I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.
Investing in commercial property is a long-term undertaking which requires a deep understanding of the location, developer, and th..Read More
The thickly populated and highly commercialised city of Sydney is one of the most sought-after regions for commercial investments...Read More
The COVID-19 pandemic has been particularly distressing for businesses as many were forced to close their stores or have been depr..Read More
Australia has been changing at a fast pace with several development projects being undertaken across the states. Most of the const..Read More
For a long time commercial real estate investing was considered the playground of wealthy business magnates with surplus funds. Ho..Read More
The vibrant city of Brisbane has been identified as a high performing region for commercial property during the COVID-19 pandemic...Read More
Sydney has been highly popular among local and international students for its high standard of education and excellent student lif..Read More
The commercial real estate sector has been one of the strongholds of the NSW economy with its steady prices and low vacancy rates...Read More
The stunning city of Melbourne is one of the most sought-after destinations in the world. However, currently, it is reeling under ..Read More
The commercial property market of Australia is a powerhouse that has propelled the growth of myriad businesses. It has been the st..Read More