Where & how to find info on cap rate, passing & market rent/yield?

Hi commercial experts,

Is there any way to find good insightful info on commercial property cap rate, passing vs market
rent/yield for specific area and property type???

THanks.

 

Generally it's DYOR - contact agents, get copies of leases, copies of contracts, memorandum of information, follow the sales process for several properties to get a feel for it. Do the hard yards.

Check Colliers, JLL, Cushman's etc websites for publications & research - they have general cap rates & market sector research papers.

 

Ask a valuer

 

Great question, on which should have a simple answer.

But unfortunately there is no shortcuts here.
The commercial market is a notoriously dark market that is hard to summarise into neat sub sectors and allocate yields/values to each. Especially on a local level, as the sample size for data is generally not large enough to produce data you would want to lean on.

You can get high level data from reports written by the likes of CBRE or Collier International. But they really only talk about assets at higher price points. For example super prime industrial assets in Capital cities.

Also don’t forget the data these reports are collecting can generally be at least 6 months behind today’s market. This can make a big difference, particularly on cap rates in a rapidly moving market like it is as I type this message.

I find to get data on a local area for a specific asset types it takes manual data collection from agents, rental managers and valuers to come to your own conclusions.

In my many years of investing I’m yet to find a good one stop shop for these type of data that can be replied on.

 

This is all correct.
I can give you historic data but they are specific to only one sector ,one class,one size and completely dated.
With the yield compression and low interest rates I wish I brought everything I viewed
Ps you are going on the right road .
Eg It is not often first time investors know the difference between passing and market rentals

 

How do you guys assess an opportunity when searching for a return metric? I like to use an roi figure. Ie (gross rent - interest) /purchase costs. Pretty basic.

I've seen rethink investing posts using (gross rent - outgoings) /purchase costs = net yield.

What I dont understand about the net yield option is why consider outgoings (ex loan expenses) if your tenant is going to be paying them? This may be different if you have a retail lease ofc.

What do you guys use?

 

What's the point of considering gross? None.

It is more correct to use net income in determining yield so that you can not only compare different properties but also across asset classes (when you use IRR). Think of net income as EBITDA for a business, which is what commercial investing is, a business.

Only residential investors look at gross yield as they don't know any better (or are more concerned with capital gains which they can't control).

If you can reduce the outgoings, you will improve your yield eg cheaper insurance, preventative maintenance, ensuring tenants fulfil their obligations like painting, servicing a/c equipment, retubing lights, AFSS etc

 

This all makes sense but if the tenant is paying the outgoings, excluding bank interest, why are they a part of the equation?

 

They aren't. You are dealing in nett numbers, anything paid by the tenant is no longer an expense/cost.

 

Hi Kmrr
The reason the outgoings are part of the equation is that not all tenants are on what's called a NET lease. Which means they pay all of the outgoings.

Some tenants are on a GROSS lease which means paying the outgoings is the responsibility of the landlord and they are not passed onto the tenant.

So when you are crunching the numbers on a property with a GROSS lease you need to remove the outgoings to get to the NET income.

 

This has been the biggest problem most commercial property investors face. There is no data readily available so there is a huge amount of legwork required if you want to get an intimate understanding of the local market conditions for the asset type you are considering.

 

The information is readily available BUT you have to pay for it ...from the valuers

 

I thought valuer generally does val report for specific property as requested by client only?

For example, I browsed through HTW services and can't find one that provides an overview of
an area, suburb for a specific type of property (office, retail, medical, etc).

Is there some specific val firm and service you are alluding to?

 

You are right, a valuation is specific to the property and doesn’t usually give you any historic data about the supply and demand for the asset type in that location.

 

All valuers will provide an overview.
If you like pm me and we can discuss.

 

You haven't looked too hard.

Colliers | AU | Real Estate Research & Analysis

Australia Real Estate Market Outlook 2019 | Research Reports

Insights | Australia | Cushman & Wakefield

Australia Research Archives - CBRE Australia | CBRE

Ray White Commercial | Real Estate | Research

Industry Insight Reports | Burgess Rawson

Market Reports

 

@FXD - even HTW does a market report which although not as focused on a single area covers off each sector.

Property Report – Herron Todd White

 

just had mine valued by HTW. i disagreed with their valuation and provided evidence why, and they upped their val a token amount. still disappointed given i was able to show evidence of the market movements with transactions that occurred in the last 4 months. their original val had 5/6 transactions from 2020... avoid.

 

Most of these valuers that I've used have been quite reasonable - being open to increase or decreasing (within reason) depending upon the instructions. Obviously much harder with firms that you have no relationship with.

 

difficult indeed.. these were my numbers in green (upped to $1.14m) and the most similar comparable in blue (rent inferred using mine). every metric outcome for the subject property was lower than the comparables and the property was probably the median in terms of quality/condition of the bunch. the only outlier was the 5.9% yield property which clearly had something fishy going on with their rental agreement. i just cant understand how HTW could value it so much worse, on a $/m2 basis, than all of these comparables. really disappointed with HTW.

/rant