Calculate Yield for Commercial Property | Market Yield for Brisbane & Gold Coast

Yield for Commercial Property

Calculating commercial property yield is a crucial step in assessing the potential profitability of an investment. Yield represents the annual return on your investment, expressed as a percentage. The result of the calculation can be useful when comparing and justifying different investment opportunities.

It is important to note that yield does not directly take into account WALE, potential capital growth, key features of the property, location, future agreed annual increases, and whether the rental is actually within accepted market parameters. Market yield can allow a trend to be found based on these factors ie. what investors are willing to accept as a yield for different types of property, location etc.

When assessing the sale or purchase of a commercial property, yield should not be the only consideration. Additional appraisal methods such as comparable square meter rates and land & building replacement values are also an important element.

What Is The Current Market Yield For Commercial Property Brisbane & Commercial Property Gold Coast

As at May 2024, Brisbane commercial property is selling at a net yield of 5.0% to 6.0%*.

As at May 2024, Gold Coast commercial property is selling at a net yield of 5.0% to 6.0%*.

Properties with higher potential for capital growth or rental considered below market is selling at the lower end of this range (ie. higher sale price and/or comparatively lower rental) while properties with a longer expected let up period may transact at a yield above the stated ranges.

* The category of commercial property can impact on the yield ranges, with prime industrial property used for the above examples.

There was an expectation that investors desired returns would shift in line with the increases to interest rates by the Reserve Bank of Australia. However this has not come to fruition due to the large amount of cash in the economy, the use of superannuation funds by private investors seeking to control their returns, current population growth from interstate migration, and the confidence in the South East Queensland market as a whole.

Types of Yield Calculations

There are two main types of yield to consider: gross yield and net yield, the latter being the most common and correct method used. The figures used for all calculations should be exclusive of GST.

Gross Yield

Gross yield is a simplified metric that represents the annual rental income of a property divided by the property’s purchase price. It provides a quick and easy way to compare the potential returns of different properties and is a simplistic way to start our explanation.

The formula for calculating gross yield is:

For example, if you are considering a commercial property in Brisbane with an annual rent of $100,000 ex GST and a purchase price of $1,000,000 ex GST. The gross yield would be:

Gross Yield = ($100,000 ÷ $1,000,000) x 100% = 10%

This means that the property has the potential to generate a 10% return on your investment each year based solely on rental income. 

Net Yield

While gross yield provides a starting point, it does not take into account the ongoing expenses associated with owning commercial property. This is where net yield comes in. Net yield reflects your actual return on investment after factoring in all property-related expenses. Net yield is the most common and important calculation when comparing investments.

The formula for calculating net yield is:

Outgoings, or operating expenses, can include:

• Property taxes
• Insurance
• Maintenance and repairs
• Property management fees

A full list of potential outgoings and a detailed explanation of outgoings for commercial property, such as definitions of terminology  such as “triple net lease”, can be seen HERE.

Net Yield Example

Let’s revisit the Brisbane property example and assume the following annual operating expenses:

• Property taxes: $15,000
• Insurance: $5,000
• Maintenance and repairs: $3,000
• Property management fees: $5,000

The total annual operating expenses would be $28,000 ex GST. Using this figure, we can calculate the net yield:

Net Yield = ( ($100,000 – $28,000) ÷ $1,000,000) x 100% ) = 7.2%

As you can see, the net yield is lower than the gross yield because it takes into account the ongoing costs of property ownership.

How To Calculate Sale Price Based on Desired Net Return

The following equation can be used to calculate a potential sale price based on the annual net rental and your desired yield:

Sale Price Based On Net Yield Example

If a Gold Coast commercial property had an annual net rental of $100,000 plus $20,000 of outgoings ex GST, and your desired return was 5.5%, the calculations would be as follows:

Sale Price = ($120,000 – $20,000) ÷ 0.055 = $1,818,182 ex GST

Note we have expressed the percentage in the form of a decimal to quicken the calculation process.

Why Net Yield Matters for Brisbane and Gold Coast Investors

Net yield is a more accurate measure of a property’s profitability than gross yield. When comparing commercial properties in Brisbane and Gold Coast, focusing on net yield allows you to make a more informed investment decision. Better quality properties, premium locations, with longer leases typically sell at tighter yields compared to say regional assets with an old leaky roof and a tenant that is in rental arrears.

Additional Considerations for Brisbane and Gold Coast Investors

• Market conditions: Rental rates and vacancy rates can vary depending on the location and type of commercial property. It’s important to research current market trends in Brisbane and Gold Coast to get a realistic idea of the potential income and expenses associated with a property.
• Capital appreciation: While yield focuses on annual returns, commercial property can also appreciate in value over time. Factoring in potential capital appreciation can provide a more comprehensive picture of your investment’s potential return.

Crew Commercial: Your Partner in Commercial Property Investment in Brisbane and Gold Coast

At Crew Commercial, we have extensive experience helping investors in Brisbane and Gold Coast achieve their commercial property goals. Our team can assist you with:

• Identifying investment opportunities that align with your financial objectives.
• Performing a comprehensive property evaluation, including an analysis of potential yield.
• Marketing and negotiating sale and lease terms.
• Commercial property management to maximise the return on your investment.

Contact Crew Commercial to discuss your commercial property investment goals in Brisbane or Gold Coast.

© Crew Commercial Property Pty Ltd 2024. Author: Josh Wright.

#commercialproperty #commercialpropertybrisbane #commercialpropertygoldcoast #yield #investment