Investors ditching term deposits and looking to commercial properties for a better return

Commercial property sales are booming in Canberra as ordinary people look for somewhere to invest their COVID savings.

And with interest rates at an all-time low, Civium Property Group director Andrew Smith says buying commercial property is proving a far more attractive option than leaving cash in a term deposit with a bank.

“We’ve found that some people have excess cash that they haven’t spent during the lockdown, and now they’re looking at potential investments to generate an income,” he said.

“Commercial property investment generally provides a stronger annual rent return than residential property, so a lot of people are going down that path.”

Mr Smith says industrial units and warehouses in areas like Fyshwick, Hume and Mitchell are red hot right now.

“The industrial market in Canberra has only been strengthened by COVID, with a strong building sector and businesses selling more products online, requiring warehouse space and distribution centres,” he said.

Commercial properties in the medical and child care industries are also in demand, while properties catering to retail and personal services – those most heavily impacted by the lockdowns – have been less popular with savvy investors.

Mr Smith says retirees are looking at commercial investments to provide an income stream, while many younger people are purchasing a property using their self-managed super funds.

“Properties are also being snapped up by small syndicates of four to 10 people who will each gain a dividend from their investment,” he added.

“We’ve seen a lot more small syndicates over the past 12 months.”

Many owner-occupiers are looking to buy commercial property and put their own business in the building, giving them control of the premises while paying rent to themselves.

With interest rates so low, Mr Smith says commercial properties can be positively geared from the start.

“For example, if someone buys a property with a six per cent net yield, and they’re borrowing at three per cent interest, even the money borrowed is positively geared,” he said.

The strength of the industrial market in Canberra over the last 12 months has been evidenced by three significant sales completed by Civium Property Group.

A property at 16 Mildura Street in Fyshwick sold for $24.2 million at a 5.68 per cent net yield with an annual income of $1.375 million.

Another commercial property at 16 Spongolite Street in Beard sold for $5.1 million at a 5.9 per cent net yield, while 11 Sheppard St in Hume sold for $8.75 million with a net yield of 5.9 per cent.

The majority of commercial properties in Canberra fetch between $1 million and $10 million, while Mr Smith says entry-level properties, usually strata-titled units in a development, can start from around $300,000.

Civium’s commercial property stock volumes allow prospective buyers and sellers to work with one partner to match their purchase criteria or investment objectives.

Mr Smith said anyone thinking of investing in commercial or industrial property should speak to a real estate agent to see what’s available, then seek advice from a banker or financial adviser as the lending criteria are a lot different from residential property, including usually requiring a 35 per cent deposit.

Civium Property Group has a range of properties available for sale, and the team can also provide a comprehensive property management services for small, medium and large commercial properties, high rise office towers, industrial warehouses and retail centres.

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