• Login:
Welcome, Register Here
follow PropertyTalk on facebook follow PropertyTalk on twitter Newsletter follow PropertyTalk on LinkedIn follow PropertyTalk on facebook
Results 1 to 9 of 9
  1. #1
    Join Date
    May 2008
    Location
    Manukau Auckland
    Posts
    1,049

    Default Commercial Yield targets???

    Dear PTers

    Could you please explain general yield targets you look for when buying a commercial property in Auckland?

    For example, when buying residential, an approx 8% gross yield is a good goal for an Auckland PI.

    What about Commercial yields?
    - Does industrial or retail have different yield targets?
    - Why are commercial yields generally higher than residential? More risk of tenant bankrupty and long vacancies??

    Shane D

  2. #2
    Join Date
    Sep 2004
    Location
    Central Otago, ChCh, AKL
    Posts
    2,443

    Default

    - Does industrial or retail have different yield targets?
    Yes, In general Industrial is leading the way with yield, I currently work with a client on a deal with over 9% NET (in commercial it is almost always Net - at list that's what we want)

    I hear some retail In Queen street sold for 5.5% -6.5%.

    It is all about location and the Tenant / Lease..
    New Zealand's #1 Marketplace for Property Investors & Sellers!
    FREE Access to HOT Property Deals
    CLICK HERE FOR MORE INFO.

  3. #3
    Join Date
    Sep 2004
    Location
    Central Otago, ChCh, AKL
    Posts
    2,443

    Default

    - Why are commercial yields generally higher than residential? More risk of tenant bankrupty and long vacancies??
    They are not always higher, as mention above. But they are mostly NET yield as the tenant pay for OPEX and out goings. and you don't have the Residential tenancy act!!
    New Zealand's #1 Marketplace for Property Investors & Sellers!
    FREE Access to HOT Property Deals
    CLICK HERE FOR MORE INFO.

  4. #4
    Join Date
    Sep 2009
    Location
    Republic of Ponsonby
    Posts
    84

    Default

    Part of the reason yields are higher in commercial is that there is a reduced pool of purchasers in relation to houses.

    Banks require more equity for commercial, as you say downtime risk in finding a tenant, mum and dad investors don't understand them, etc.

  5. #5
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,333

    Default

    Shane, this question is like asking "How much should I pay for a house in Auckland?" i.e. it's very open ended.

    Yield or cap rate is based around things like:


    • Location of property.
      • Exposure to traffic (pedestrian and vehicular).
      • Proximity to motorways
      • Proximity to customers
      • Desirable (or not) location
    • Strength of tenant(s).
    • Length of leases. And terms in leases such as rent reviews, personal guarantees etc.
    • Quality of property in terms of:
      • construction materials. How much maintenance will be needed?
      • things like parking, services (like lifts, air-con etc.)
    • Tenant desirability / lettability (is there such a word?) i.e. if your current tenants leave, can you re let it easily or will it be tricky?
    • Design of building e.g. warehouses are better to be high stud. Low stud greatly limits your tenant possibilities. Retail shops are better to have wide frontages rather than a long skinny layout with narrow frontage.

    And this is just off the top of my head. There are many other factors as well (freehold, stand alone is a bit better than unit title). This list is endless but it's no different to residential.

    When you're buying residential you probably weigh up 100 different little intangible things and base your price on that.

  6. #6
    Join Date
    Oct 2003
    Posts
    3,578

    Default

    Some KFC's just sold at low 5's on a long lease. Some in Newmarket also went in the 5's. From what i understand, it is primarily Asians buying these (I assume because they have access to cheaper finance) as they want good quality buildings.

    As well as that book recommended in the other thread, this website (http://www.propbd.co.nz/) is good for current info, especially the auction summaries that he gives.

  7. #7
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,616

    Default All about the tenant

    Commercial property is all about the tenant. I've seen tonnes of great commercial property, in great locations sit empty for a long period of time. So while style of building, age, location and other factors are important I would concentrate on the tenant.

    Best trick for commercial property is to find empty and buy at a discount due to it being empty. Then before unconditional on purchase, sign up your own business or another tenant. This increases the value significantly. It's quite easy to go from an empty cost base of say 1, to a value once tenanted of 1.5 (ie buy $1 million and worth say $1.5 million).

    Really investigate the tenant and think of issues like
    - If they move out, who will move in
    - How long is their lease for? A right of renewal, does not mean they will renew!
    - Are they in an industry that doesn't make sense - ie video rental shop would be a no go as video's are redundant.
    - Who is giving you a personal guarantee and what is that guarantee worth?

    Generally banks lend for a 10 year term, so that the property is repaid quickly.

    I would ideally look for a commercial property with more than 1 tenant, so that if 1 tenant falls over, hopefully the other one stays. Just reduces the risk.

    I personally look for a 10% net yield. That way there is lots of surplus if interest rates increase to 9% or higher, and to pay off the mortgage quicker.

    I'm not too worried about paying down residential rents once the cashflow is sitting reasonable as you can always get another tenant. But with commercial, I like to pay down the mortgage as quick as possible.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  8. #8
    Join Date
    May 2008
    Location
    Manukau Auckland
    Posts
    1,049

    Default

    Ross,

    Some realy good tips above.

    Another gentleman in this thread also mentioned the tip of buying empty discount priced commercial and then have a tenant lined up. It seems a great way to add value and equity.

    10% net yield target. Now that is a return!!

    Shane D

  9. #9
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,333

    Default

    Yeah you can often add value over time by simply improving the tenants and their leases. This takes time though. So patience is required. It might be 2 years before you can get a rent review, new lease or new tenant etc.


 

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Expected Commercial Net Yield in Auckland
    By chrisgoh in forum Commercial Property (NZ)
    Replies: 18
    Last Post: 16-12-2017, 01:53 PM
  2. Replies: 7
    Last Post: 09-07-2010, 12:42 AM
  3. IRD targets 300 property investors
    By muppet in forum Property Investment (NZ)
    Replies: 17
    Last Post: 23-01-2010, 05:10 PM
  4. Super fund targets property
    By OllyN in forum Property Investment (NZ)
    Replies: 1
    Last Post: 10-09-2009, 04:44 PM
  5. IRD names tax-dodge targets
    By drelly in forum General (NZ)
    Replies: 3
    Last Post: 11-06-2009, 05:04 PM
  6. Banks targets leakers, (John that is)
    By muppet in forum Property Investment (NZ)
    Replies: 2
    Last Post: 15-02-2009, 03:22 PM
  7. World mining giant targets North Island
    By muppet in forum General (NZ)
    Replies: 0
    Last Post: 14-06-2007, 01:41 PM
  8. Blaming the easy targets
    By muppet in forum Regions News (NZ)
    Replies: 0
    Last Post: 02-03-2006, 08:49 PM
  9. Property giant targets Manukau
    By Marc in forum Property Investment (NZ)
    Replies: 6
    Last Post: 02-06-2004, 08:27 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •