Residential property prices have increased to such a degree in Auckland that the commercial property market has become an attractive alternative for small investors in New Zealand.
Recent sales results reported from commercial real estate agency Knight Frank include a ground floor office in Penrose (selling price $830,000) and a warehouse/office building in Mt. Wellington (selling price $730,000).
These prices are comparable to the average cost of residential properties in many Auckland locations and are close to better quality apartments within the city, and are putting commercial property within the price range of investors who may not have been considering putting their money in this type of venture.
The advantage of investing in commercial property is that this type of investment generally offers higher rent yields than residential ones.
Most commercial leases include provisions where the tenants are responsible for insurance and some maintenance costs. Structuring the lease in this manner boosts the investor’s returns even higher.
A drawback is that can take longer to find tenants for commercial properties once a vacancy occurs, meaning that investors must be prepared for longer vacancy periods than they would expect in residential properties.
According to the latest figures, commercial property in Aukland is providing yields in the 7 to 8 eight per cent range. Some investors are achieving event higher yields.
In contrast, gross rental yields on residential properties are running at less than 5 per cent and less than four per cent once expenses are deducted.
