commercial property

[rollyt]

looking at purchasing a commercial property at 480 Collins Melbourne.

The cost of the office suite is $261200
Depreciation(year1) $4948
Net Rent $15672
Size of Suite 32sq/mtrs plus 9sq/mtr balcony
Tenant: Collins street Tower Business Centre

Office Suites are already leased and offer you a 6% NET annual return – with 3% pa increases, and 3-yearly market reviews.

since i live in NSW country and I don't know Melbourne i was wondering if some of you Guru's can tell me if this is a good investment or not?
is it a building that you can negotiate on price?
is there capital growth in this building?
what cycle of the commercial property are we in?
how do rental per square metre compare to other commercial property in the area?
and other answer will be helpful in making my decision

Regards Rolly

 

[alexlee]

looking at purchasing a commercial property at 480 Collins Melbourne.

The cost of the office suite is $261200
Depreciation(year1) $4948
Net Rent $15672
Size of Suite 32sq/mtrs plus 9sq/mtr balcony
Tenant: Collins street Tower Business Centre

Office Suites are already leased and offer you a 6% NET annual return – with 3% pa increases, and 3-yearly market reviews.

since i live in NSW country and I don't know Melbourne i was wondering if some of you Guru's can tell me if this is a good investment or not?
is it a building that you can negotiate on price?
is there capital growth in this building?
what cycle of the commercial property are we in?
how do rental per square metre compare to other commercial property in the area?
and other answer will be helpful in making my decision

Regards Rolly

Is it just me (I've never invested in commercial property) or does 6% sound low? Commercial interest rates are about 8%+, while residential is about 6%. So you would expect commercial yields to be higher. I read a few articles about some big fund buying a large commercial building for 5 or 6% and it was supposed to be pretty low.

My gut feeling is that commercial is a whole different kettle of fish to residential, so wouldn't it be better to start on residential first?
Alex

 

[alexlee]

Another quick thought: don't you need to be registered for GST for commercial property?
Alex

 

[Michael Yardney]

I understand commercial property pretty well, a substantial part of my portfolio is in commercial property.

The rules are very different to residential property investment rules.

Without checking into details of the specific property, let me makes some observations:

1. the timing in the commerical cycle is not good
2. the office area is very small.
3. The rental seems very high and
4. There are vacancy rates for suites in the vicinity.

Do some more due dilligence before proceeding

 

[The Y-man]

looking at purchasing a commercial property at 480 Collins Melbourne.

The cost of the office suite is $261200
Depreciation(year1) $4948
Net Rent $15672
Size of Suite 32sq/mtrs plus 9sq/mtr balcony
Tenant: Collins street Tower Business Centre

Office Suites are already leased and offer you a 6% NET annual return

RollyT,

Just as a comparison, I'd like to point out that commercial property trusts are returning around 9% net income on invested capital (that's after all management fees etc and before cap gains).

– with 3% pa increases, and 3-yearly market reviews.

3 year leases are on the short side for commercial.

is it a building that you can negotiate on price?

I am sure anything is negotiable.

is there capital growth in this building?
what cycle of the commercial property are we in?

Related. Commercial rent is largely determined by business activities and demand - hence they follow the share market with a slight lag. The cap growth is related to the rent / lease you have.

how do rental per square metre compare to other commercial property in the area?

Check with local commercial agents as if you wanted to lease offices in the area. You'll get an idea of vacancy and rents.


Cheers,

The Y-man

 

[Able]

RollyT,

Just as a comparison, I'd like to point out that commercial property trusts are returning around 9% net income on invested capital (that's after all management fees etc and before cap gains).

The Y-man

But remember that commercial property trusts would normally involve borrowings so you shouldn't make a direct comparison between their income return and a straight yield on a commercial property.

Regards
Alistair

 

[The Y-man]

But remember that commercial property trusts would normally involve borrowings so you shouldn't make a direct comparison between their income return and a straight yield on a commercial property.

Regards
Alistair

Very true (at very low interest rates too).

Many thanks for the correction.

Cheers,

The Y-man