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  1. #1
    Join Date
    Aug 2005
    Posts
    358

    Default Industrial v's Commercial

    My experience is mostly in residential property so I have a beginner type question that I would like help with from those who regularly buy in this sector.

    The question is this: What yield difference would you expect from an industrial and commercial property.

    There will be many factors in play.

    If you could somehow equalize these factors and get a comparablly ranked property from each what would your expectations be.

  2. #2
    Join Date
    Dec 2004
    Posts
    1,042

    Default In Reply

    Don and Liz

    Your question isn't clear enough
    "Commercial" property covers all types of non residential investments.

    The main catagories are
    retail e.g. shops
    office
    Industrial e.g. factories

    Then you have those which are a mixture of them all.

    I am guessing you want to know the different yields from factories as compared to shops as compared to offices.

    Post a better definition and I will be happy to assist.
    OllyN [email protected]
    Independent Property Consultant
    Residential and Commercial Solutions

  3. #3
    Join Date
    Aug 2005
    Posts
    358

    Default

    Yes olly - I was thinking about Retail space v's factories
    and office space v's factories and retail space v office space?

  4. #4
    Join Date
    Dec 2004
    Posts
    1,042

    Default Ok

    You won't be satisfied with my answer because making these sorts of comparisons requires some hard facts about each individual deal.
    A lot depends on the strength of the leases and the tenants, the location, the condition, market trends etc
    But if we take a perfect model with a strong tenant, a good lease and a good location we would probably find
    that a top industrial will have a 7-8% yield . A top retail might have a 6-7 1/2% yield and a top office about 8-9% yield.
    The other extreme with dodgy tenants, poor leases or vacant etc then yields might be: industrial 11-14%, retail 9-12% and office any number you like.
    But as it's almost impossible to compare apples with apples as it would have to be worked out on a case by case basis.
    PM me or email me direct if you want specific advice on a specific property.
    Last edited by OllyN; 11-11-2007 at 01:50 PM.
    OllyN [email protected]
    Independent Property Consultant
    Residential and Commercial Solutions

  5. #5
    Join Date
    Aug 2005
    Posts
    358

    Default

    thanks olly

  6. #6
    Join Date
    Jun 2005
    Location
    Nelson NZ
    Posts
    3,863

    Default

    Don and Liz
    My opinion not as a major buyer of properties but as a " Mum and Pop investor" might actually give you some clues. We started out 15 years ago with a fringe city warehouse / showroom. The same tenant is still there and the tenant and I have always had a good relationship. Despite all the hype over the interviening years the rent on this property is still not quite up 50%.
    I have another small pure industrial workshop / office. The rent on this one is almost double over 13 years. I have never the less had some vacancies occassionally. The longest was 6 months and the most recent was about 4 months.
    Compare that with a retail investment close to a mall.
    This has been held for half the time of the other ones.
    The rent on this has grown almost double. One change of tenants had two offers to rent it on the same day resulting in nil vacancy.

    The tenants in the first one are a national branch network. Never any problem about paying and lease details.
    The pure workshop has had its dramas (nothing like residiential but still dramas) The tenants tend to be local and not familar with leases and ways of operating. They think of the lease as a sort of residential thing. I can not be bothered being the big bad landlord. Much easier to do things for them that other commercial landlords would not bother with like spraying the weeds on the site and so on. Costs nothing to very little and I can always drop in for a cup of coffee or free beer.

    Most beginners start with industrial because of the cost thing and apparent simplicity. In my opinion if you want to get into industrial investments you need to be able to talk the same talk as them. No point in being the big guy. You have to understand where they are coming from and understand that many workshop activities do not make lots of money.

    For the retail it is all business. They become hysterical when somethng happens that affects their business.

    The banks run hot and cold on commercial of all classes. You are in a much smaller market and the risks for them is far greater. By far greater I mean they know that the value is linked to the tenant and they have seen their share of problems compared with the great grey mass of residential.

    Hope that gives you some clues.

  7. #7
    Join Date
    Nov 2005
    Posts
    3,286

    Default

    For the retail it is all business. They become hysterical when somethng happens that affects their business.
    I think it was Mr Jones who is pretty damning of retail tenants, especailly compared to the simplicity of industrial.

    I believe the usual steps are...

    Commercial
    Retail
    Industrial
    Residential

    xris

  8. #8
    Join Date
    Aug 2005
    Posts
    358

    Default thanks

    thanks, also very helpfull. Glen did you mean that to be a successful landlord it is better to "understand" the tenants business or more generally being able to relate to the tenant on a human level. I am not sure how hands on I would want to (or should) be.

  9. #9
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,296

    Default

    Quote Originally Posted by xris View Post
    I think it was Mr Jones who is pretty damning of retail tenants, especailly compared to the simplicity of industrial.

    I believe the usual steps are...

    Commercial
    Retail
    Industrial
    Residential

    xris
    These steps being from bottom to top I assume?

  10. #10
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,296

    Default

    Quote Originally Posted by xris View Post
    I think it was Mr Jones who is pretty damning of retail tenants, especailly compared to the simplicity of industrial.

    xris
    Yeah he said rather than send criminals to jail we should make them the landlord of a small block of shops for a year or 2 - that'd teach 'em.

    I once did the leasing for a new block of shops when I was an agent. 4 of them. Nearly put me in a straight jacket. All the infighting. "I should be the only one selling (insert bread/milk/gifts/stamps) etc.". I'd hate to have to manage them, but I guess people do.

    Retail has done very well over the last few years, but prior to that, it wasn't anything special. This will come around again I reckon.


 

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