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Guide · Commercial

Commercial property — yield over growth.

Commercial real estate trades the capital-growth promise of residential for a higher, more direct cash yield — and a different rulebook on finance, GST, and tenant risk. Here's what changes when you cross over.

Reviewed · Adam King — 30 years in finance, Sunshine Coast

Why investors look at commercial

Residential investment in Australia has long been a capital-growth story with modest 3–4% gross yields. Commercial flips that: lower historical capital growth, but yields commonly 5–8% and sometimes higher in regional markets. The tenant typically pays outgoings (rates, water, insurance, body corporate) on top of the rent — net yield is closer to gross yield than it ever is in residential. The other shift is the lease. Commercial leases run 3 to 10 years, often with annual CPI or fixed-percentage increases built in, and options to renew. That predictability is what changes the maths for an investor — but only as long as the tenant is in the building.

Commercial finance — the rough shape

  • Max LVR

    up to 80%

    For most commercial property types — specialised or regional can sit lower.

  • Gross yield range

    5–8%

    Suburban industrial / fringe retail typical band.

  • Lease terms

    3–10 yrs

    With CPI increases and renewal options.

  • Loan term

    up to 30 yr

    With the right lender, and without annual reviews. The majors write shorter.

What changes when you finance commercial

  • LVR ceiling is lower than residential. Up to 80% LVR is available for most commercial property types with the right lender — specialised security or regional and rural assets can sit lower.
  • Rate margins are wider. Commercial rates typically sit 0.50–1.50% above a comparable residential rate, reflecting tenant risk and lower secondary-market liquidity for the asset.
  • Loan terms can run to 30 years with the right lender — the majors tend to write shorter terms with annual reviews, and we steer toward lenders that skip both. Interest-only periods are common and can run 3–5 years.
  • Documentation can be lighter. Lease-doc and low-doc commercial loans use the rental income from the lease as the primary serviceability evidence — useful for buyers without standard PAYG income (self-employed, SMSF, trust).
  • GST may apply — but often it doesn't. Where the property sells as a 'going concern' (typically a tenanted investment sold with the lease in place), the sale is usually GST-free, which is the common case for an existing commercial investment. Where GST does apply, the vendor charges it on the sale and the buyer generally claims it back as an input tax credit. Confirm the GST treatment of your specific contract with your accountant.

Residential vs. commercial — investment lens

Two different asset classes, two different rulebooks. Neither is universally 'better'.

ConsiderationWith usDirect with a bank
Gross yieldCommercial: 5–8%+Residential: 3–4%
Capital growthCommercial: 1–4% historical, asset-specificResidential: 4–7% historical, location-driven
OutgoingsCommercial: tenant pays (net lease)Residential: landlord pays
Vacancy riskCommercial: longer to re-let — 3–12 months typicalResidential: shorter — 2–6 weeks typical in metro
Tenant poolCommercial: narrower, more bespokeResidential: deep, broad

Lease-doc loans — when they fit

Lease-doc commercial loans use the executed lease — not your personal tax returns — as the primary income evidence. The lender looks at the contracted rent against the loan repayment (Interest Coverage Ratio — some lenders will write at 1x cover, with 100% of the net commercial rent counted) and approves on that basis. This is the path most often used by self-employed buyers, family trusts, and SMSFs buying commercial. A handful of specialist non-bank lenders play in this space. Rates carry a modest premium over standard commercial, but with the right lender LVR reaches 80% and terms run to 30 years — the lease just needs to be in place for three months with a third-party tenant; it doesn't need to be long or investment-grade.

SMSF angle

Commercial in super — the structure that actually works.

An SMSF can borrow to buy commercial property via a limited recourse borrowing arrangement — borrowing through your super. For a business owner, the powerful version is owning your own business premises inside your SMSF — the business pays market rent to the fund (deductible to the business, taxed concessionally inside super), and the fund builds equity through both repayments and growth. Speak to your accountant on contribution caps, in-house asset rules, and whether the structure suits your circumstances.

The 'why buy commercial' question

Commercial isn't a starter asset. It rewards investors who are buying for yield, have a sensible buffer for vacancy, and read the lease document closely — it's the contract the whole investment rests on. The wrong tenant on the wrong lease in the wrong suburb will erase three years of yield faster than residential ever does. The right commercial purchase, with a strong tenant on a long lease in a tight market — that's an asset that pays its way from day one and pays down the loan whether or not the capital growth shows up. The job at the front end is making sure the deal is the right one.

Related

Questions you might have

The honest answers.

Real numbers · honest answers

Buying commercial? Get the structure *right* first.

Decades across commercial files. Standard, lease-doc, Limited Recourse through your Super, going-concern — let's map the right structure before you go to contract.

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General information only — not personal credit advice. Rates and figures shown are indicative and subject to confirmation against current lender pricing and policy.