mortgage broker

Commercial property yields still strong

Facebook Twitter LinkedIn Mail Us

Commercial property returns have averaged by about 11% pa since 2010. It was seen as a recovery from the GFC slump, after which investors eventually searched for income in response to low interest rates and bond yields that pushed property values up and property yields down. Mortgage broker Chan & Naylor analyses whether or not the yields have been pushed too low and if the global interest rates that are starting to hit rock bottom will move up to reverse it.

Real assets do well in an economic downturn phase because it takes longer for easy money to flow into them. However, its valuation process results have the tendency to lag and move more with current economic conditions that drive rents.

Commercial Property

The current investment cycle seems to be maturing. However, according to AMP, each 0.25% fall in commercial property yields roughly translates to a 4.25% capital gain. With average commercial property yields dropping from 7.3% to 5.25% since 2009, there was about 4.2% p.a. of return. Note that the values today are almost 40% more than the values that were in December 2009 and it could be because of the drop in yields.

In the 1980s, the residential and commercial property rental yields were similar but now commercial property has a much higher average rental yield. Residential properties are often over-valued but commercial property is more attractive on a medium-term perspective because of its low dependence on capital growth.

The biggest risk of commercial property is if bond yields back up sharply in case inflation and global growth rise. Note that commercial property has benefited from investor flows during the bond crash in 1994 and the gradual backup in bond yields in 2007 when investors switched out of bonds into commercial property because it offered higher yields. Property was vulnerable in 1990 and 2008 when the property risk premium was less attractive and leasing deteriorated because of rising supply and falling space demand.

Sydney and Melbourne office markets have seen vacancy rates falling to about 6% and with even more drops ahead. Rents are rising strongly as well. There will be new office supply in the next decade but the market seems to be stable. Leasing conditions remain difficult in Brisbane and Perth, though, but office is expected to be most attractive while retail is expected to be the least.

If you would like to know more about finance, you can click here to know more about Chan & Naylor services. You can leave your details here and we can schedule you for a free consultation. We’ll contact you to explain more.

Whether you are a beginner, seasoned investor or business owner, our property and business tax accountants can give you guidance to maximise the financial areas of your life. We can also give you an integrated and tailored solution for your superannuation, taxation, property investment, asset protection, estate planning and more.

Click here to schedule a chat or call 1300 30 68 68 or visit any of our local offices near you.

If you like what you are reading, subscribe to our newsletters now at www.chan-naylor.com.au or follow our Facebook page: https://www.facebook.com/chanandnayloraustralia

Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and South West Sydney, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.

Disclaimer

To view the original content, click here

Photo: Flickr

Leave a Reply

Your email address will not be published. Required fields are marked *

Join our mailing list today!

Keep up to date with our latest news & updates!

Subscribe to Newsletter (home)

Join Our Mailing List

Join thousands of property investors and business owners who subscribe to Chan & Naylor – get monthly updates including news and views from experts in property, business, wealth creation, tax accounting, finance...and more!