Why Commercial ?

Rentals are often not reviewed frequently so not a reflection of the true market rental.
When you calculate the value of a property based on cap rate you use the market rent.
If the rental is is higher then the surplus is called super rental .
Using DCF the super rental then adjusts the property value .
Lower rental is treated as rental shortfall until the next market review. Again the property value is adjusted.
Hence the market rental is more important than the passing.

 

Just to clarify, when you say rental are you referring to the market rent or passing rent?

 

Passing rentals are frequently not at market.

 

within last how many days/weeks/months of properties leased and/or advertised for lease are
considered "at market"???

 

Whenever the market has moved - property may be above or below market.

 

Best evidence is new leasings followed by renewals then reviews.

 

I was just reading an old valuation report that gives an example of growth
1997 yard rental $5 m2 today $30m2
Building $30m2 today $100m2

When you look at a 4ha site then you can see the impact of inflation

PS note that interest was 10% where as today it is about 2.5%

 

Hi Beano,
Has the property gone through any major capital improvement, new tenant with superior rent etc
or just same property same tenant same use purpose etc and just enjoying the compounded
rent increase over time??

 

No improvements ....same old , same old property ....that's good old industrial

 

Good on you Beano I guess it's a great example of owning quality and not just accumulating
ordinary stocks. Something that sets you up for life and you can hold for a life time and possibly
more ;-)

 

The no 1 growth in rental income is land followed by warehouse rentals then carparks then retail Last office.

 

I think you placed retail quite low at second last! Tho to be fair it’s definitely the most volatile! Even without Covid, church street parramatta would currently be a nightmare to own a retail premise on (tho it might pick up dramatically once the roadwork is completed).

It’s probably extremely fast growing in the right locations, but it’s also very volatile. I mean a tiny little section in a shopping centre might cost a café $15 000 per month! But that money is being made by the centre. Yields on some retail like KFC and Bunnings get well under market RoI’s because the competition for the crème de la crème tenants is so high!

the volatility is unattractive tho .. also agree with you on industrial.

Industrial/warehouses are an interesting one because they’re actually quite “stable”. Example: market rents in Sydney averaged a net 110-130pm2 for a standard industrial for something like 10-15 years in a row, while rents in every other property category, including residential, kept going up. Recent times caused industrial to accelerate faster, but it will certainly regress from a rental performance perspective, unless something more permanent changes.

——

Purely looking at rental growth upside, retail might be the best one, because location trumps every other variable when it comes to rentals, even land. Getting a slice of action in a growing city might mean 40k rent this year and 90k rent in 5 years. Getting a distressed retail under market, attracting a good tenant and then selling after improving the rental by 40-60% is very possible with retail.

——

Perhaps the best indication we have of stable or good rental increases is from how banks treat different CIP asset classes. Childcare’s seem to get the most favourable terms. So it looks like they are likely to have some of the most stable and consistent growth, from all CIP. I’d put it way above land, land is good as an auxiliary aspect to a purchase. As on its own it’s not very useful.

warehouses were historically undesirable compared to other CIP, it’s only recently that warehouse yields are lower than offices and even retail. I am assuming that’s because warehouses have the least “maximum upside”. Covid definitely caused them to accelerate tho, whilst everything else decelerated dramatically

 

You are correct about the warehouse yields as when I first started investing office had the lowest yield and warehouse the highest but in the 2000's they reversed (yields). Silly me I followed the $$$$s and brought office and retail instead of sticking to the industrial.
To clarify things the land is really "lessors interest"
I like to tell you more regarding these but I can't as these are my phase III investments and only acquired within the last decade. (The reviews are between 8 to 12yrs) but indication are these will be my flagship investments.

Historically
Phase I the average residential investments.
Phase II Commercial
Phase III lessor's interest

Future
Phase IV settling six foot under

 

Cemetery plots are leasehold

The tenant is immovable barring a court order or a resumption by a higher authority.

 

Sold for $2,425,000.00 at auction today. Did you end up buying this???

 

Nah. Yield was less than 5%. I am targeting in range for 7%. Let me know if you have any suggestions

 

Did someone say rockhamptom ??? lol

 

Thanks for recommendation. I will check out Rockhamptom. Can I ask from how did you find out sold price of $2,425,000.00 for that auction? Is there a website where we can sold price of all commercial auctions?

 

@Beano is it true that only 5% of commercial properties are investment grade, that is worrth the time and effort to purchase?

 

Is this a question or a statement ?