Written

For

The

Australian

-

Why

smart

money

is

moving

into

commercial

property

Is commercial property about to have its moment? After years in the wilderness, I think the answer is yes — and the smart money is already moving.

Here's the setup. The RBA is tipped to cut rates again next week, with more to follow. Term deposits, already under 4.5 per cent, are heading into the mid-to-high 3s by year-end. Meanwhile, commercial property is throwing off gross rental yields of around 6.5 per cent for retail, 5.5 per cent for office and just under 5 per cent for industrial. When you can pick up bricks and mortar yielding well above cash, income-focused investors take notice.

The recovery story is real. KPMG has just called a "U-turn" in the sector, with two of the three key segments — industrial and retail — now delivering positive returns. Office is still negative but appears to have bottomed. That's precisely where I see the biggest capital growth opportunity. Astute buyers can grab quality offices at pre-Covid prices, and with corporates pushing staff back into the CBD, the tailwinds are building.

You don't need millions to play. Sydney buyer's agent Kitty Parker points out you can pick up a B or C grade 40sqm office suite in the Sydney CBD for under $500,000. Prime CBD sites in Sydney, Melbourne and Brisbane will always attract demand — you can't make more land in the middle of a city.

One strategy I'm particularly fond of, and have used personally, is buying a commercial property inside a self-managed super fund and leasing it back to your own business. It's popular with medical and professional service owners for good reason — you become your own landlord, stay compliant, and can access up to $2m in tax-free capital gains after age 60.

Just remember commercial isn't residential. GST applies without an active lease, banks lend less, and vacancies run higher. But for those doing their homework, a purple patch may be starting.