Risk versus Reward
10% seems very high to me, especially compared to residential at the moment being mostly under 5%. If you can get 10% return on commercial, why would anyone bother with anything else?
Unless one has oodles of resi equity to draw upon to fund a commercial purchase themselves without bothering a bank/lender (and the requisite hoop jumping to secure comm finance), then one needs to strike a balance between the risk/reward pay-off of following the commercial road.
That said, there are many who do well with commercial IP's; have done in the past and will do so in the future. Bear in mind however that the conservative LVR's that a bank/lender is likely to apply in this credit climate will at least partly dictate how one strucutres the deal, and if they can get it across the line.
Of course in relation to Pembroke's question the expected yield or cap rate will depend on where the asset is and what type of asset it is.
Difficult to give a generic answer without knowing location and the calibre of the asset.
10 % is a nice number, however in this market, at least I am finding that to achieve a higher yield, one needs to be looking at assets in multiples of seven figures and possibly into eight figures, and with decent sitting tenants.
More common (and affordable to entry investors) CIP's are hovering anywhere from 6-8.5 % (in Melbourne) for industrial and office. Retail even worse; less than resi yields and with far more risk. Difficult to achive +ve CF on those returns.
Pembroke, if you're happy to share approximate location and size/calibre of asset (land and box) perhaps your question may be answered a little more specifically.
I would also ring comm agents in your area (at least three or four) and get an idea of cap rates. Take an average and verify everything yourself. Also look at what lease rates are in your area for similar types of assets and what they go for per sq m.
www.realcommercial.com.au
www.commercialrealestate.com.au
Those sites may help as a start.
Obviously as a seller Pembroke, you would want the cap rate to be as low as possible to gross up the rental to achieve a higher capital value for your property. Be careful however that you don't get too greedy and scare away any potential purchasers. I've seen quite a number of properties on the market at present that started with such a ridiculous asking price that they are now ignored and despite price drops (even with number of hits counters reset), they are very very stale......on my watchlist for a bargain basement buy
If you're happy to share some more info perhaps others could also give their input. As a generic question however, my two cents is stated above.
Good luck