Yields in commercial

They've been saying that for 4-5 years now, when's this crash going to happen hmm?

And no, rents aren't going up any time soon because people CAN'T afford to pay higher rents. Businesses can't survive at higher rents.

 

So....if rents can't go up, what happens when interest rates do? Landlords get squeezed, businesses close, vacancies increase, forced sales, bank repos etc etc. What do you think will happen to property prices? It is all part of the property cycle. This WILL happen, it just depends on when. If they raise rates slowly, economy keeps ticking away, there is a chance there will be stability but this is unlikely IMO if we look historically.

Interest rates in the rest of the world follow the US broadly, they are on the rise. The time for very low interest rates is ending. We can just hope they increase slowly over several years.

2% yields without development potential are ridiculous IMO. This is just negative gearing for commercial. Losing money monthly with the hope of capital gains. Yes it can work but the theory is flawed, when rates rise, there are going to be a lot of people in a lot of pain.

 

I'm not disagreeing with you. Just saying picking the timing is hard. It may go up another 3 years before all that happens.

So the best thing to do is to grow a steady portfolio and keep your LVR low at 30-40%.

 

@Omnidragon, if you have zero portfolio, would you look at buying CIP now or wait?

I'm leaning towards waiting at the moment, as @RickProp said interest rates are on the rise. Giving myself till 2018 but happy to hear thoughts.

 

CapX is a commonly used financial / accounting term for
CAPital eXpenditure
things like asset purchases, alterations,improvements that are not general maintenance

 

As @Omnidragon said, timing is very difficult to get right. If you wait to get it right, you may miss out on several years CG. Like you, I am new to CIP but I have purchased through the RIP cycles in the past as it is difficult to call the top and bottom. It all averages out in the mix.

The main thing that will destroy you is CF, if you can't hold onto it if 1) rates go up 2) vacancies occur and where CIP differs to RIP, 3) the bank calls in your mortgage on an annual review (if vacant, LVR drops and you can't put in the cash etc). So have that buffer in cash & other income streams etc to protect the downside otherwise the big ugly bank will be banging down down your door.

I am also interested in CIP now after releasing equity from RIP portfolio, I feel the market is toppy but it could be toppy for a few years and carry on going up for a while but there has to be a down phase (i.e. best time to buy broadly). If only I had a crystal ball....

 

I'd buy now for the right asset. Eg I'm looking at something that could potentially yield 12-15% on a 20 year lease, in growth metro suburbs. I'd buy that if it worked out - still doing DD.

I just received two rental offers for a vacant shop I have in the city. The yield works out to be around 3%, if anyone bought at current prices. I probably wouldn't buy this.

 

Quite so
A good cash buffer and several unencumbered properties is a good protection from a nervous bank.

 

Saw a property opposite the QVB on George St. They're looking for $130m with a 2.5% yield - @Omnidragon - you're laughing getting 3%

 

Haha bizarrely I've had offers to buy a few CBD retail which would equate to 3% yield for the buyer. I turned them down. My finance friends (and a few developer friends) think I have rocks in my head.

 

I received a offer of 1.87% net yield on one of my properties last month from the tenant (residential)
Wanted to freehold the site

 

@Beano nice margin, only a 50x multiple of the rent

 

If i could easily replace it , i would accept it

 

The rent review is due in 2018 (8 yrs) it will be more than interesting to see what the multiple is then

 

@Beano - mid-term market review?

 

No clue in the world ...market information is so sparse ...unless i was a valuer
Anyway in 10 mths i have 12 to review in 18mths another 12

 

What do you expect it to do? Triple in rent?

 

I expect a increase that is in direct proportion to the change in the value of the land.
Properties have risen by about 30pc so land perhaps 40pc
If the portfolio averages 3pc a year then I could achieve $100k pa rental increase

 

The yields in the commercial are still sufficient to generate a fairly good profit
In todays news (refer AFR p36 9 March 2017) they reported the sale of the old Darrell Lea building Bourke-Russell St Melbourne for $33m at a 4pc Net yeild
When it was last sold at $11.53m does anyone know what the Net yield was ?
It could have been over 10pc ??

Other recent purchases on P37 of the AFR are
Centrelink/medicare office 65 Duchess St WA 9pc Net Cap Rate
28 Strathvale Court Brisbane 7.7pc Net Cap Rate
120 Marine Parade Coolangetta 7.1pc Net Cap Rate
on the 573m2 blg 1,000m2 section Centre Link building over 40pc of the rental is profit!
that building is 7years old and sold for $2.4m