LJH Commercial

LJ HOOKER COMMERCIAL MACARTHUR 05 Yield versus capital growth Yield is the return an investor receives as a proportion of the sale price. Capital growth is an expression of the difference between the current market value and that of when it was acquired. In order to understand the relationship of yield to capital growth, we must use the residential market as a benchmark for comparison. In the last decade, residential property prices have risen sharply in many Australian capital cities. In Sydney and Melbourne, the median house price has risen by more than 20% and 30% respectively over the last five years. During this period, residential yield was subdued for landlords, partly due to a rise in tenants taking advantage of low interest rates to become owners themselves. This caused capital growth to become a priority metric for any residential property investor. In comparison to residential property, commercial property has historically offered better yield returns than the residential sector. Both gross and net yield can provide a clearer indication of returns for commercial property owners (especially in instances such as land tax). Therefore, commercial property investors generally prioritise yield when transacting. Commercial yields across the industrial sector—as well as office and retail sectors—span 4.5%-7.5%. This is comparatively higher than the recent national residential average of 4.5%—with Sydney offering 3.5% and Melbourne 3.4%. While commercial property investors are typically motivated by the yields on offer, they still value the opportunity of capital growth. In fact, yields and capital growth are not mutually exclusive. A savvy investor should know how they’re related, and how one can change the other. RESIDENTIAL OFFICE RETAIL INDUSTRIAL 3.5% - 4.5% 4.5% - 6.5% 5.0% - 7.0% 5.5% - 7.5% Source: LJ Hooker Commercial AUSTRALIAN AVERAGE REAL ESTATE INVESTMENT YIELDS