Commercial property is getting a lot more attention right now – I now have a DONE-FOR-YOU Solution for investors! But does that mean it’s the right move?
The recent SMSF changes have made commercial property more attractive, but there are some major risks that many people overlook.
Here are the key things every investor should know:
Commercial property is much riskier than residential.
If a residential tenant leaves, Australia’s vacancy rate is currently under 1%, so you’ll usually find another tenant within weeks.
Commercial vacancy rates are often 5% to 25%, depending on the asset class and location. It’s not unusual to wait 3–6 months, or even 6–12 months for larger properties, before finding a new tenant.
Commercial leases aren't as safe as many people think.
If a small business tenant stops paying rent, legal action can easily cost 10,000–20,000, with no guarantee you’ll recover the money.
That’s a very different risk profile to residential investing.
Tenant quality matters just as much as location.
With residential property, location does most of the heavy lifting.
With commercial property, you also need to analyse:
- The tenant’s industry.
- Their financial performance.
- Their management team.
- Their long-term viability.
Choosing the wrong tenant can ruin an otherwise excellent investment.
Commercial yields aren't as attractive as they once were.
Years ago, commercial property commonly generated 8–15% yields.
Today, quality commercial assets generally produce around 5–7%.
When savings accounts are already paying around 4–5.5%, that extra return isn’t as compelling unless you’re also expecting long-term capital growth.
The SMSF rule changes have changed the equation.
With residential lending now restricted in many SMSFs, commercial property has become a far more logical option for experienced investors with sufficient financial buffers.
But that doesn’t make every commercial property a good investment.
Commercial property can still deliver strong capital growth... in the right locations.
One example is Norwest Business Park in Sydney.
Commercial properties purchased around 2013 reportedly outperformed nearby residential properties over the following 13 years, despite surrounding suburbs such as Bella Vista and Kellyville also performing exceptionally well.
Commercial property is valued differently to residential.
As rents increase, commercial property values often increase as well because valuations are driven by rental income (capitalisation rates).
Residential property doesn’t work the same way. Higher rent alone doesn’t necessarily increase the property’s value.
Commercial is not a beginner's game.
It suits investors who:
- Have financial buffers.
- Can tolerate longer vacancies.
- Can properly assess tenant quality.
- Are willing to wait for long-term capital growth.
- Understand the additional risks involved.
Is Commercial Property a Good Investment for Your Portfolio?
Commercial property absolutely has a place in some portfolios.
But buying one simply because it’s “commercial” is not a strategy.
The opportunity comes from selecting the right location, securing the right tenant, managing the risks properly, and being patient enough to let the investment compound over time.
Would you consider buying commercial property, or are you sticking with residential?
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Co-Founder | The Educator & Mentor
I’m also a property investor with a $27m+ debt-free portfolio of residential & commercial property, generating over $300k+ net annual passive income.
I help people from all over Australia, by accessing a unique strategy that combines high growth high cashflow residential property, alongside highly profitable property development projects to help accelerate their passive income. I typically work with families, young over-achievers, and new Buyers Agents who want a predictable, DATA-led system to grow wealth and Passive Income.