Report compares yields in and out of Auckland
Property investors are flocking towards the commercial property market as interest rates remain low and house prices soar, with net yields on Auckland commercial properties usually dipping below 4%, according to real estate firm Bayleys Realty Group (Bayleys).
On Bayleys’ main Auckland auction on June 02, the firm recorded 17 commercial properties due to be offered. However, three were sold before the auction started, with seven of the remaining 14 sold under the hammer, including a 926 square-metre warehouse on a 1,112 square-metre site in Onehunga providing a net rent of $132,600 plus GST a year and sold for $3.49 million, providing its new owners with a 3.79% net yield.
Tenants in the majority of commercial leases usually pay outgoings such as rates and insurance, providing the landlord with a net return more easily comparable with other types of investments - unlike residential tenancies where the landlord usually pays the outgoings and the yield is gross, according to Interest.co.nz.
Currently, smaller retail properties are popular with mum and dad investors, with commercial auctions across the country remaining active. For example, a 150 square metre shop (built in 2014) at Henderson in west Auckland pushed investors to outbid each other until it was sold for $1,122,000 – giving its new owner a 4.09% net yield.
However, yields outside Auckland are slightly higher than the rest of the country, with desirable properties often achieving 4% to 5% yields, Bayleys said, as reported by Interest.co.nz.
With sky-high house prices, investors often buy a smaller commercial property for a lower price than a residential rental and get a better return. However, they need to be prepared for the possibility of an extended period of vacancy if they lose a tenant from a commercial property, Bayleys said.
