Key takeaway: Residential investors are moving into commercial property because recent tax changes make low-yield, negatively geared residential assets harder to justify. Joshua Barnes says net residential yields in markets like Newcastle are often only 2 to 3%, while commercial investors can achieve almost double that, and some lenders now offer up to 80% loans on tenanted commercial assets.
In this episode of Geared for Growth, Mike Mortlock is joined by Joshua Barnes, Commercial/Industrial Specialist at MOVABLE Commercial, to unpack why more residential property investors are turning their attention to commercial real estate.
With changes to the investment landscape making negatively geared residential property less attractive to some investors, commercial property is increasingly being considered for its higher yields and potential to provide more scalable income. Josh explains what he is seeing on the ground in Newcastle, including the influx of residential investors and buyers’ agents into the commercial market, as well as the changing appetite of lenders.
But moving from residential to commercial is not as simple as buying an asset with a higher yield. Josh breaks down the risks investors need to understand, why local market knowledge matters, how to assess vacancy risk, and how investors can identify opportunities to manufacture capital growth through leases, market rents and improvements. He also shares practical advice on due diligence, negotiating with selling agents and getting yourself into a position to act when the right property comes along.
Banks have historically lent only 50 to 70% on commercial property, but Josh says some of the big four lenders now offer 80% on tenanted assets, particularly industrial and retail. On a property under $1 million to $1.5 million, a 20% deposit means roughly $200,000 to $300,000, plus stamp duty and costs. He disagrees that you need $1 million to start.
Look for buildings where the current rent is below market, often because rent reviews were missed. Josh says the gap can be 30 to 40%. When the lease comes up for review or renewal and the rent moves to market, supported by some landlord maintenance, the asset’s value rises by a similar amount.
Josh recommends industrial because it’s versatile. Tenants range from trades to office fit-outs and gyms, and in Newcastle industrial has the lowest vacancy. A building that suits many tenant types lowers vacancy risk, and a multi-tenanted property spreads your income across more than one business.
Building, pest and strata reports, a legal review of the contract, and above all a close read of the lease to check whether the tenant can walk away early. Josh also recommends studying your local market for 6 to 12 months, calling agents about recent leases to learn rents per square metre and how long properties sit vacant.
This is general information from the podcast, not financial advice.
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