Rental yield on commercial property less than a 12-month term deposit

Property

Prices were firm with net rental yields ranging from 3.19% to 5.39% at Bayleys' latest commercial property auction

29th Jun 18, 1:43pm by Greg Ninness

The net rental yields got down to just over three per cent at Bayleys' latest commercial property auction.

There was a good turnout of investors for the auction, held at the company's head office auction room at Auckland's Viaduct Harbour.

Originally nine properties were scheduled for auction but two had their auction dates postponed. Of the remaining seven, four were sold under the hammer and three were passed in for sale by negotiation.

The cheapest sale of the day was a convenience store on a corner site in Onehunga (pictured), that went for $550,000, only slightly more than half the price of an average residential property in Auckland.

It was providing rental income of $17,565 (plus GST) giving its new owner a net rental yield of 3.19%, which is less than you'd get from a 12 month term deposit at a bank.

There were multiple bidders for all of the other properties that sold, with the net rental yields ranging from 4.25% for a light industrial/retail premises at Burswood in East Auckland, to 5.39% for a bulk retail premises in New Lynn.

Details of these and other commercial property sales from around the country are available on our Commercial Property Sales page.

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20 Comments

by BigDaddy | 29th Jun 18, 3:06pm 1530241597

To compare bank deposits with commercial property yields is a nonsense and quite misleading. Ultra low yields don't mean anything until the facts are known. In many cases the land is more valuable than the improvements and hence commercial investors treat the rent as temporary. Likewise the land may be bought by a neighbour, the combined value of which has nothing to do with yield. Often the tenant is the buyer and pays over the top to secure his lease. There are many other factors that affect yields besides. Commercial property is a business and has all the advantages of businesses such as tax deductions, write offs, not to mention capital gain none of which are available to raw bank deposits. A very low yield is not the end result, is is merely the beginning.

by Retired-Poppy | 29th Jun 18, 4:24pm 1530246244

Ollie, I currently get 4.27% on a 5 yr TD paid monthly. To some it feels like the end of the times knowing TD yields exceed that of rentals!

by Ex Expat | 29th Jun 18, 4:55pm 1530248137

Not to me. 30 odd years to live (hopefully). 3.5% for one year TD. I feel VERY exposed as it's a pathetic short term return for a long term exposure. The maturity mismatch is a real worry. How getting less than 1% more when you are locked in for five years makes you feel secure is beyond me. If the world turns to custard I want something tangible, not a promise to pay. Take a basic investment course and see how smart lack of diversification is.

by Nzdan | 29th Jun 18, 5:06pm 1530248764

Technically it’s 20% more in return ;) but you’re right.

by Retired-Poppy | 29th Jun 18, 6:35pm 1530254116

Ex Expat, if you feel so exposed, buy a rental. Youvé beaten this same old path here long enough to have renewed your 12-month term deposit more than once. Why get 3.5% when you believe there to be more? Why do you then turn and complain your over exposed? Stop complaining and do something about it!

I know you've previously mentioned your waiting (seemingly impatient) to be a private equity lifeline of last resort to a distressed company on the basis the next downturn will be short and the recovery even quicker than last time. How providing private equity to distressed companies that have banks breathing down their necks provides you with a secure promise to pay is beyond me!

If the world turns to custard, I am diversified in one debt free family home. At this ripe stage of the cycle, greed is YOUR biggest weakness - not mine.

The term deposit is with Rabodirect and is fully secured under a grandparented arrangement by the parent bank in Netherlands. I am not exposed to an OBR event. I consider this to be a rock solid promise to pay given our major banks heavy exposure to property. What I decide to do at maturity is for consideration closer the time.

Hope this helps address any concerns you have about my apparent lack of diversification ;-)

by Houseworks | 30th Jun 18, 8:37am 1530304659

Retired poppy Please have some fun before you expire. That way you will have had more adventures to tell the grandies :)

by Retired-Poppy | 30th Jun 18, 9:19am 1530307164

Johnny cm Latelys formula for fun; "before it's too late, use as much of other people's money as I can lay my hands on and gamble for quick gains. Deep down I know this is wrong but, I waist no time bailing up bigger fools, filling their heads with visions of spectacular returns and that I am an intelligent successful entrepreneur"

by Double-GZ | 30th Jun 18, 9:17am 1530307027

Universities start accepting Chinese exam result as admission criteria. Would that bring more Chinese students to the country? https://buff.ly/2yv1sFc

by JB | 29th Jun 18, 5:05pm 1530248738

Buffett only advises diversification for those who don't know what they are doing.

Interesting !

by KH | 1st Jul 18, 9:46am 1530395211

Good comment from Buffet about diversification. But then 99% of us don't know what we are doing and that could include Buffet. How do you know ? So diversification is the way methinks.

by PatrickW | 29th Jun 18, 7:13pm 1530256394

With the world conceiding the need to increase rates in order to normalize, I would rather be in a variable increasing yield then in a peak real estate market with no where to go but flat or down.

by Double-GZ | 29th Jun 18, 7:14pm 1530256491

New to the market this week 9 Springcombe Rd, St Heliers. CV: $8,000,000.
In a unique grand stand position of 3037sqm with a tennis court and widespread elevated views of the Waitemata Harbour. The development opportunity of this property is once in a lifetime. Hope you like it!
https://www.bayleys.co.nz/1751572

by PatrickW | 29th Jun 18, 7:18pm 1530256704

As a property investor and developer perhaps one day agents will understand that serious buyers and investors don't look at listings without a price....just a waste of time. In this case however, a double waste of time.

by Houseworks | 30th Jun 18, 8:33am 1530304435

So after you have developed a property wouldn't you rather let buyers determine the price through competition? It also depends what part of the country you're in Patrick. I think it's good buying something with a price but if there is a property you like and want to buy, it may be up for auction. So what then?

by KH | 1st Jul 18, 9:51am 1530395471

I think Patricks point is he wants people to look at a house he wants to sell. No published price means much fewer looks.

by Bobster | 29th Jun 18, 7:35pm 1530257742

PHWOOOOOOAR!!!!!

You aren’t just a naughty, naughty boy.......you are truly a #sadpropertypornaddict

by Bobster | 29th Jun 18, 7:56pm 1530259014

Hey DGZ....this is kinda my first time.... I can’t believe I’m doing this....but how does this one make you feel? I know it’s a bit rough....hey, maybe you would like rough if you tried it....?

Wanna meet me there later tonight...you and me....we can run our fingers slowly (oh so slowly) over the estate agents sign......tease each other with softly spoken unconditional offers.....with no protection other than a finance condition....ok, I could let you insert a solicitors approval condition, that sounds yummy

#sadpropertypornaddict

https://www.trademe.co.nz/property/residential-property-for-sale/auctio…

by Double-GZ | 29th Jun 18, 8:10pm 1530259837

Meet me at Troy's place when you hear the chopper tonight ^^
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12079522

by Houseworks | 30th Jun 18, 9:02am 1530306138

From today's nzh article

'"Bricks and mortar has a great future," she says of physical retail assets ... On a per capita basis, New Zealand has only half the retail floor space of Australia and a quarter of that of the United States," says Trainer.'

The opportunities presented by property of all types including commercial retail are very interesting. The growth potential and value-add options continue to draw buyers and investors. People can drive their investments and their own futures rather than being a price-taker and so property continues to stack up

by Malarkey | 30th Jun 18, 3:27pm 1530329241

Do you guys remember an episode called 'Button, Button' from the old TV show, The Twilight Zone? In it a mysterious man promises someone wealth if they press a button on a box, but a stranger will die. So the button is pushed, money is handed over, and a stranger dies. Spoiler alert! The stranger was the previous person who pushed the button.

Now how about instead of strangers we make it about shopping malls: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12078673

With a population as small as NZ's, every time they open a new mega mall they empty out the last one they opened.