Smaller commercial properties providing superior net rental yields to similarly priced residential properties

Smaller commercial properties providing superior net rental yields to similarly priced residential properties
This retail premises in Waihi sold for $500,000.

There was a good selection of commercial properties suitable for private investors at Bayleys' commercial property auctions in Auckland and Hamilton on December 4 and 5.

At the Auckland auction nine properties were offered (plus two that were scheduled to be auctioned but were withdrawn) and sales were achieved on six.

Four of the properties that sold were retail premises and they sold at prices ranging from $550,000 for 91 square metre shop in the Royal Oak Mall, to $1.681 million for a 293 square metre shop in St Johns.

A warehouse/office/showroom unit in Avondale fetched $1.8 million and a warehouse/office unit in Penrose sold for $1.295 million.

Net rental yields were well above what could be expected to be achieved for similarly priced residential properties and ranged from 4.89% for a retail unit in the Wairau Valley to 7.33% for the shop in the Royal Oak Mall.

At the Hamilton auction nine commercial properties from throughout the wider Waikato district were offered and sales were achieved on four.

Prices started at $500,000 for a shop on a 1012 square metre corner section in Waihi that was returning net rental income of $41,600 a year, while the most expensive sale was an industrial property in Hamilton providing rental income of $113,000 a year, that sold for $2.525 million.

Details and selling prices of all the properties that sold at both auctions, plus many more commercial sales, are available on our Commercial Property Sales page.

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Surprising that commercial rental yields have dropped so little over the last few years and nowhere close to interest rate drops, great returns indeed for those who know what they're doing

Agreed Yvil
However, there are significant differences between commercial properties and residential properties.
Unlike residential properties, commercial properties can take considerable time between tenants to find a new lease holder. Just look at some of those empty shops, warehouses and factories about with signs "For Lease" - they can be sitting empty for some considerable time.
There is also high risk of businesses going into liquidation - from memory something like 60% of small businesses go bust within two years and you can bet your bottom dollar that the landlord won't have been seeing rent paid for some time prior, and the likelihood of recouping outstanding rent from a limited liability company are pretty remote especially as banks will have first call.
Get a good property in an area not going backwards, with a good long established stable company and returns can be good.
However, more so than residential landlords, I think commercial landlords need to have very deep pockets to cover long periods of both down time and defaulting tenants.

... yup ... I know someone who lost their tenant on a car yard .. the site's been empty nearly 12 months ... set up for only one type of business .... selling vehicles...

The " For Lease " sign is fading ...

... I'd said he should've built flats on it , when he first bought it as an empty site ... not gonna say " told you so " after the event...that'll save me from receiving a right old slapping...

Good Lord! $500k for a place in Waihi that WAS returning $41,600 in rent. Good luck finding a replacement tenant just there for $800 per week! ( I assume Oceania Gold has gone elsewhere )

Owner occupier buying on a good cost to replacement ratio maybe.. hard to buy land, and then build for cheap anywhere these days..

You could be right. But there is a backlash out there against the gold mine that is tunnelling under township properties to get at the gold. Not sure I'd want to build just there if it's above a new shaft!

(Note the address of this particular sale - No 1 Mueller Street, and check out the above link!)

If the two dangling bits down there is made of steel then by all means buy that commercial property in Waihi..