Commercial Property Yield Returns
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What is the main topic discussed in this episode?
It's The Real Estate Podcast, brought to you by Ray White, the largest real estate and property group in Australasia. And welcome to another episode of The Real Estate Podcast, available on iHeartRadio, also Google and Apple Podcasts, or wherever you get your podcast from. Property portfolios, they are a curious thing. For example, last year, a very good mate of mine was talking about the property market to me and just how much of a crazy time he was seeing his residential investment properties increase. Now, I knew that he had around 10 residential investment properties and at the time I had no knowledge of his commercial property investments until he accidentally slipped it out about owning an industrial cluster of four workshop properties that he had bought a few years ago.
So I asked him what was the big secret and why he hadn't mentioned it to me, and he said that he was unsure back then on the returns, but now he's recently bought two more similar properties, and one of the main drivers for him, as he told me, was that he has managed on two of them to get 10-year leases and on the other two, 5-year leases. So I thought that story would lead quite well into our podcast series of Let's Talk Commercial with our resident commercial property expert, be it with a broken arm and a carbon fibre joint, Scott O'Neill from Rethink Investing.
What insights does Scott O'Neill share about commercial property?
G'day Scott, welcome back to the Real Estate Podcast. G'day, thank you for the introduction again, appreciate being here. And is that something that you've sort of heard about as well like with that friend of mine and the way that you know he's had a bit of a change with the way he views industrial or in this case commercial property? surprised how many people already have looked at commercial property like it's not mainstream like residential where you you know you go on to the mainstream articles and sponsored by realestate.com or domain or whatnot they're all talking residential all the time commercials in the background and most quite experienced investors have dabbled in it to a degree and I
Like that's one of the reasons you just mentioned, long leases. It's very attractive, especially when you're, you know, particularly dealing with large value properties. You like to know there's a long lease attached to it, protecting your income, giving you a return. It's definitely one of the reasons. And yeah, there's many more we can go into as well. So do you think the worm is turning a little bit, Scott, with more residential investors now turning to commercial property?
How are residential investors shifting towards commercial property?
Yeah, look, I've seen this firsthand. So like I'm in the business of helping people acquiring commercial property and we're literally seeing about the volume. It's about 40% more than it was this time last year in terms of what we're purchasing for our clients. That's just in dollar amounts. And we're really just seeing an explosion of, I guess, extra interest in this department. And one of the main reasons, I think, is the interest rate talk. As interest rates, you know, the threat of the interest rate rises increase, people start looking at their residential portfolios, which may already be negatively geared or at best evenly geared, and think, what would an interest rate rise do to my portfolio?
And it's going to make it harder to hold. So you immediately think, where can I get better cash flow? Because that will support a higher interest rate environment.
What are the yield returns for commercial properties in 2022?
And that's where commercial is quite literally a fast track solution to that. You're going to be dealing with much higher incomes on the assets and an interest rate rise really won't scare you when you're sort of hearing the numbers we're talking. It was interesting talking to the mate of mine because I said to him, well, what have you got in there in terms of tenants? And he was able to actually get a mechanic in there. And then off the back of that mechanic, he got another mechanic. So there's actually two mechanics out of those four in the same block. Yeah, look, a lot of these businesses feed off each other and they obviously have different specialties.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:02–1:38
2
What insights does Scott O'Neill share about commercial property?
1:38–2:45
3
How are residential investors shifting towards commercial property?
2:45–3:30
4
What are the yield returns for commercial properties in 2022?
3:30–4:17
5
How does location affect commercial property yield returns?
4:17–5:09
6
What costs should you consider when purchasing a commercial property?
5:09–8:43
7
What cash flow can you expect from a $1 million commercial property?
8:43–10:11
8
How does commercial property investment compare to residential in terms of cash flow?
10:11–10:42
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