5 expert tips to kickstart a commercial property portfolio

The ‘set and forget’ nature of many commercial assets is proving to be a strong lure for residential buyers looking to shift their focus towards diverse property investments.

Burgess Rawson CEO Ingrid Filmer says commercial properties often leased to ASX-listed tenants on long, secure leases, make for an appealing prospect.

Commercial properties often host the same business for several years, much longer than residential investments, Filmer explains – with reasons related to extensive tenant fitouts to the reliance of tenants on a consistent location for their client base.

Factors to consider for commercial investment include types of asset class (fast food, childcare or government-tenanted etc), in addition to the strength of the tenant profile and the lease terms.

Owning well-leased commercial properties are attractive and tend to include longer lease terms, quality tenants and favourable lease provisions, such as fixed annual rental increase.

Often they offer net terms, where the tenants are responsible for the payment of all outgoings including statutory expenses and insurance and, most importantly, can have higher returns with yields typically between 4-8%.

Here are five expert tips to create or grow your commercial property portfolio.

1. Learn about commercial market dynamics

Meticulously analysing the local commercial market will help you craft an astute investment strategy.

Burgess Rawson regularly releases Industry Insights Reports and Market Snapshots, which provide up-to-date analysis of current market trends and conditions.

Becoming adept in reading and understanding key commercial lease terms could be the difference between investing in a successful property or not.

Going to portfolio auction events is a great way to learn about the commercial market. Picture: realcommercial.com.au

2. Attend auctions

To help upskill in commercial property fundamentals, attending auctions gives first-hand insight into market prices, yields and buyer interest.

Not only do they offer a unique platform to educate one on the auction process, but there is a huge range of commercial investments in diverse income brackets and geographical positions – providing a snapshot of the market and the type of property you might like to invest in.

Every six weeks, Burgess Rawson’s Portfolio Auctions are held across Sydney, Melbourne and Brisbane, and its second major event for 2024 is coming up this month.

Several big-ticket assets are being offered for sale via Expressions of Interest campaigns, with the bulk to be sold at Burgess Rawson’s Portfolio Investment Auction 167, showcasing potential prime opportunities across the country.

The auction events will kick off at the Sydney Opera House on March 26, then to Melbourne’s Crown Casino on March 27 and finishing up at The Hilton in Brisbane on March 28.

3. Research commercial asset types

Popular commercial assets sit across a range of industries and market sectors, including healthcare, early education, fast food, government, industrial, retail, banking and automotive.

Burgess Rawson National Partner Yosh Mendis says fast food investments are one of the most sought-after asset class, with recent sales achieving yields of around 4.25 per cent.

Commercial tenants, such as medical centres, tend to have longer-term leases than residential property investments. Picture: realcommercial.com.au

However, the healthcare sector is also thriving. Burgess Rawson’s first campaign for 2024 saw more than $70 million in transactions, with health dominating the program.

Here are some of the key assets going under the hammer at the March event:

Fast food

A McDonald’s in Cardiff, Guzman y Gomez in West Tamworth, Hungry Jack’s in Ormeau and a KFC, Domino’s and Ampol outlet in Marsden Park.

Located at 43 Pendlebury Road, Cardiff in New South Wales, the McDonalds has a triple net 20-year ground lease and is a newly constructed state-of-the-art facility with a dual lane drive thru and ample on-site parking.

Early education

Centres across Australia will be available, including a strategic childcare investment at 329-331 Springvale Road, Forest Hill in Victoria with a 20-year net lease to a national operator.

The significant 1,553sqm landholding is for sale via an Expressions of Interest campaign and has desirable 3% annual rent increases and is part of a key activity precinct servicing many local businesses.

Healthcare

A blue-ribbon freestanding metropolitan healthcare investment at 1 and 3 Addison Road, Pennington in South Australia.

The property has a 15-year lease to 2033, plus options to 2058, and 2493sqm main road corner freehold sites over two separate titles and a huge 146m street frontage and exposure are among the investment’s highlights. It includes a Guardian Pharmacy integrated to the medical centre.

Two properties in the densely populated Bridge Road, Richmond area – strategically positioned in one of Melbourne’s most coveted health precincts and also leased to Lumus Imaging.

Fast food is a popular asset type for commercial investors. Picture: realcommercial.com.au

4. Wide-ranging yields and locations

A commercial yield is not one-size-fits-all and reflects the attributes specific to the property investment on offer.

This includes location, strength of tenant profile, length of lease, land size, development potential, vacancy factor and rent review structure.

Unlike residential property investment where a key driver is location, that is not always the case for commercial properties.

Quality properties are often limited in supply, so it’s important not to narrow your search.

Widen the net and explore metropolitan, regional or interstate locations on their own merit.

5. Expect competition

Increased interest among buyers is to be expected when it comes to blue-chip investments.

Don’t hold back if this is the case and accept that other parties will also fight hard to secure it. The reasons you like the property are the same as why others do too.

Ensure you’ve done your homework ahead of auction, to get the edge on your competition and secure your new investment.

To find out more about commercial property investments and the upcoming Portfolio 167 event, visit Burgess Rawson for further insights.