Advantages of commercial property investment

Mention the word ‘property’ to many Australians, and residential housing often comes to mind. But commercial property is a major investment sector that offers a wealth of advantages for investors.

In today’s low interest rate environment, plenty of Australians are looking for investments with the potential to earn strong, steady income returns – and commercial property can tick plenty of boxes.

3 key advantages of commercial property investment

Let’s take a look at the three chief advantages of commercial property investment and exactly how they can benefit investors.

1. The potential for strong returns

Past performance is no guide for the future, however the latest Property Council of Australia/ MSCI Australia Annual Property Index, confirms that commercial property has a track record of delivering strong returns.

As the table below shows, commercial property investors have earned annual gains of up to 9.4% over the last 10 years.

Net yields on commercial property are equally impressive, typically in the order of 5.5-7.0%. With alternative investments such as term deposits taking a hit given record low interest rates, that’s considerably more than investors will earn on cash sitting in the bank.

Commercial property will typically offer stronger yields than the more growth-focused residential property sector.

Index Performance
Property returns June 2021
1-year 3-year 5-year 7-year 10-year
All assets 7.9% 5.9% 8.2% 9.4% 9.4%
Standing Investments^ 7.8% 5.8% 8.1% 9.3% 9.4%

Source: The Property Council of Australia/MSCI Australia Annual Property Index [1]
^The Standing Investment index subset is based on completed and lettable properties only.

2. Long leases lead to stable income

Lease periods for commercial property tend to be far longer than we see in the residential market, often spanning 5-7 years with an option to renew for an equal period.

This gives commercial property investors greater surety of income with less of the costs associated with loss of rent and finding a new tenant. This can make commercial property very attractive to cash-flow focused investors seeking stable income, such as those nearing retirement.

3. Fewer outgoings for owners

Unlike residential leases where the landlord is usually responsible for rates, taxes and building insurance, it’s common for commercial tenants to pay many of the outgoings associated with a leased property.

The combination of outgoings paid by the tenant can vary between states and leases. But as a guide, commercial tenants are often responsible for maintenance, council and water rates, and even building insurance.

This are considerable advantages to commercial property investment. In short, it means fewer ongoing costs, which contributes to higher net yields, with less drain on an investor’s cashflow.

Why a commercial property fund makes sense

Collectively, strong returns, long leases and fewer outgoings create a significant advantage to commercial property investment. However, the challenge for investors is that buying a commercial property directly can mean taking on significant debt.

In addition, commercial properties are high value assets. Investing directly makes it difficult to achieve diversification across the commercial sector, thereby lowering your risk profile. Moreover, selecting and managing a commercial property and negotiating leases calls for expertise in order to deliver the best results.

Investing in a commercial property fund can provide the best of both worlds. It’s an opportunity to reap the rewards of a diversified, professionally managed commercial property portfolio without the need to add debt to personal balance sheets.

Discover the latest opportunities

The Westbridge team is comprised of skilled commercial property experts, who are committed to offering accessible opportunities in high-performing commercial property assets.

Get in touch with us via the form below to learn more about commercial real estate investment and our latest investment opportunities.

[1] The Property Council of Australia/MSCI Australia Annual Property Index (Unfrozen) published Quarterly (AUD)