The complete guide to Commercial & Industrial Property investment
Commercial and industrial property continues to attract investors looking to diversify their portfolios, generate stronger rental returns, and secure long-term wealth. Compared with residential property, commercial assets operate differently, with their own financing requirements, lease structures, taxation considerations and investment opportunities.
Understanding the most common questions investors ask about commercial and industrial real estate can help you explain the opportunities with confidence and guide investors through the decision-making process.
Here’s everything you need to know.
Buying commercial property
1. How do commercial real estate contracts differ from residential real estate contracts?
- GST treatment within the contract is explicit.
- Cooling rights are limited; these are more commonly referred to as due diligence periods.
- Settlement adjustments can include other items less common in residential contracts including rent, GST, land tax and incentive or rent-free periods.
- Tenancy status is usually more explicitly addressed.
- Going concern provisions made clear given the implications this has on GST treatment.
2. What is the minimum deposit required to buy a commercial property?
Purchasing commercial property requires a 10% deposit (excluding GST).
Ownership and investment opportunities
3. Can investors purchase commercial property through an SMSF?
Yes. Commercial property can be purchased through a Self-Managed Super Fund (SMSF), provided the purchase complies with Australian superannuation regulations and borrowing requirements.
Many investors use commercial property as part of their retirement strategy because it can provide long-term rental income while diversifying their superannuation assets.
4. Can investors purchase commercial property in a trust or company?
Yes. Many commercial purchasers use trusts or companies for ownership. The most appropriate structure depends on the purchaser’s circumstances and should be determined by their advisers.
5. How long does it usually take to lease a commercial property?
Leasing time varies depending on location, property type, and market conditions.
As a general guide, investors should allow approximately three to five months to secure a tenant if the property becomes vacant.
6. What are the primary risks associated with commercial property investment?
Like any investment, commercial property carries risks, and these risks don’t differ to residential property, but they could be considered more pertinent in commercial property.
Some of the most common include:
- Longer vacancy periods
- Higher purchase and holding costs
- Changes in local market demand
- Planning or zoning changes
- Economic conditions affecting businesses
These risks are manageable by diversifying investors’ portfolio and selecting properties with strong tenant demand and quality locations.
7. Can investors claim tax deductions in commercial property?
Yes. Commercial property owners may generally claim deductions for expenses such as:
- Loan interest
- Property management fees
- Maintenance
- Insurance
- Council and water rates
- Depreciation on eligible buildings and fixtures
8. Can an owner operate their own business from the property?
Yes. Many business owners purchase commercial property to operate from their own premises. However, suitability depends on the property’s zoning, permitted use, planning controls and any Owners Corporation rules that may apply.
Purchasers should obtain independent advice to confirm that the property can be used for their intended purpose.
9. Is there an Owners Corporation?
Many commercial developments include an Owners Corporation responsible for maintaining common areas and shared facilities. However, this is project-specific, so please discuss it with McMullan & Bird to determine whether it applies to the project you are selling.
Tax and financial considerations
10. What yields can be expected?
Returns vary according to location, tenant demand, lease conditions, and property type.
Commercial warehouses and storage facilities have historically delivered rental yields that are often higher than residential property, commonly ranging between 5% and 8%.
11. Is stamp duty payable?
Yes. Stamp duty applies to commercial property purchases and is generally calculated on the full contract value, and it is payable once within a 10-year period.
12. What outgoing costs should be expected for commercial property?
Commercial property ownership involves several outgoing expenses, including:
- Council rates
- Water rates
- Owners Corporation fees
- Building insurance
- Land tax
- Property management fees
One significant advantage of commercial property is that many lease agreements allow some or all of these outgoings to be on-charged to the tenant, helping improve the property’s net income.
13. How much can an investor borrow from a lender?
Lenders generally finance between 60% and 80% of the property’s value, depending on factors such as:
- The purchaser’s financial position
- The property’s expected rental income
- Lease length
- Tenant quality
- Property type
14. Are there depreciation benefits attached to a commercial property?
Yes, the depreciation benefits are the same as residential property. New commercial property may provide depreciation opportunities that can improve after-tax returns.
15. Can commercial property be negatively geared?
Yes, the depreciation benefits are the same as residential property. New commercial property may provide depreciation opportunities that can improve after-tax returns.
16. Is capital gains tax payable on commercial property?
Yes. Commercial property is generally subject to Capital Gains Tax when sold. Under the new method commencing 1 July 2027, the 50% CGT discount will be replaced by an inflation-based discount, and a minimum 30% tax rate will apply to net capital gains.
Commercial property held in a qualifying business structure may be eligible for small business CGT concessions. Investors should seek advice from their accountant based on their individual circumstances.
17. Is GST payable on commercial property?
In many cases, yes. Most new commercial properties include GST within the purchase price.
However, GST treatment varies depending on whether the property is vacant, leased or sold as a going concern, with the contract outlining the applicable treatment.
18. Can investors claim the GST back?
In some circumstances. An investor may be able to claim back the GST if:
- The purchaser is registered for GST – this can be a sole trader or other entity structure but must be registered with the ATO for GST.
- You intend to use the property to carry on a taxable enterprise, such as commercial leasing.
- You hold a tax invoice for the GST component of the sale – this needs to be requested from the seller.
However, GST generally cannot be claimed where the property is sold under the margin scheme or as a qualifying going concern.
19. What does “going concern” mean?
A going concern is a GST treatment that may apply when a leased commercial property is sold with an existing tenant and operating lease.
Where all legislative requirements are satisfied, the sale may be treated as GST-free.
To qualify, the property generally needs:
- An existing tenant
- A lease operating at settlement
- Written agreement between both parties within the contract
Investors should obtain independent accounting advice to understand the implications.
Conclusion
Commercial property is simple once you master three fundamentals: ownership structures, leases and taxes, and strategy. With the right guidance, it becomes one of the strongest assets in your clients’ portfolio.
Explore McMullan & Bird’s Commercial & Industrial investment opportunities here:
https://mcmullanbird.com.au/commercial-industrial/
