More investors looking at smaller commercial properties as interest rates fall and they chase rental income stream

More investors looking at smaller commercial properties as interest rates fall and they chase rental income stream
Investment Property Snapshot
 What: 276 square metre light industrial building. Where: 2/21 Michelle Rd, Wigram, Christchurch.
 Sold for: $630,000.         Net rental yield: 6.5%.      

As interest rates plummet, commercial property continues to provide attractive returns for investors looking for long term rental income at prices that won't break the bank.

Among the commercial property sales recently announced by Bayleys Real Estate was a light industrial unit in the Christchurch suburb of Wigram (see photos above and below).

The modern unit had a showroom and office at the front and high stud warehouse/factory with roller door access at the rear, a total floor area of 276 square metres and five car parks.

It came with a long-standing tenant who had recently extended the lease for another five years, with annual rent set at $41,000, to be reviewed in three years time.

Bayleys agent Benji Andrews who handled the sale of the property with his colleague Ben Carson, said although most of the potential buyers who showed interest in the property were experienced investors with existing commercial property portfolios, there were also a number of novice investors looking to try their hand at commercial property for the first time.

Most were looking for a long term rental income stream and when it was put up for auction it was sold under the hammer to an experienced investor who bought it for $630,000.

With rental income of $41,000 a year, that gave the new owner a net rental yield of 6.5%.

Commercial properties differ from residential properties in that under most commercial leases the tenant usually pays outgoings such as rates and insurance, giving the investor a net yield, whereas with residential property the landlord usually pays the outgoings, so the yield is gross.

So in the current low-interest rate environment a net yield of 6.5% will look very attractive to many investors seeking a long term income stream.

You can check out the prices paid for many types of commercial properties located throughout the country on our Commercial Property Sales page.

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Thanks GN, 6.5% net is very attractive indeed and way better that what is being achieved by residential yields. Wigram is a good area too for this kind of property. I can't help thinking that commercial yields will reduce thus increasing their property values. I do think the rent is bit high though, if I guesstimate 76m2 office @ $150/m2 + 200m2 warehouse @$100/m2 = $31'400 rent pa. this would represent a 5% yield on sale price of $630k which sounds right to me

I agree. Never thought about commercial rental as an investment. Interesting

It can be much, much better than commercial but if you're new at it, be careful. The value of a commercial property is mostly determined by its income. The worst mistake you can make is to buy an over-rented commercial property but you can create value if you know what you're doing, See my example below

Good yield indeed , but I would not touch it , I prefer my commerical property risk to be spread and like listed property stocks

But with direct ownership of commercial property you can create value (unlike listed stocks). Example, I buy a property with rent of $50k and a yield of 5% = property value $1Mill. I refurbish the property to a new lessee's liking by spending $100k in exchange for a $10k higher rent. Total rent is now $60k pa so value of property is $60k/5% = $1.2 Mill, et voila, I have created $100k equity