Property details
Property type
Purchase details
Income
Annual operating expenses
Cap rate
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net yield on value
Net Operating Income
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annual NOI
Cash-on-cash return
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on equity invested
Annual cash flow
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after mortgage
Full investment analysis
Gross annual rent
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Less vacancy allowance
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Effective gross income
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Council & water rates
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Insurance
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Property management
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Maintenance & repairs
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Other expenses
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Net Operating Income (NOI)
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Annual mortgage interest
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Annual cash flow
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Key investment metrics
Purchase price
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Equity invested (deposit)
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Cap rate (NOI / value)
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Gross yield
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Cash-on-cash return
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Implied property value (at market cap)
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Commercial property investing tips for Australians
What is a good cap rate in Australia?
Australian commercial cap rates vary by sector and location. Industrial currently achieves 5-6%, retail 5.5-7%, office 6-8% and childcare/medical 5-6%. Higher cap rates indicate higher yield but often higher risk or lower growth potential.
WALE is critical
Weighted Average Lease Expiry (WALE) measures how long tenants are committed to stay. A long WALE (5+ years) provides income security and is highly valued by lenders and investors. Short WALE adds vacancy risk.
Tenant quality matters
A national chain or government tenant in a commercial property is worth a significant cap rate premium over a small local tenant. Tenant covenant strength directly impacts your financing options and resale value.
Net vs gross leases
Commercial leases vary significantly. Net leases (where tenants pay outgoings) are more valuable than gross leases (where the landlord pays). Always clarify who pays council rates, insurance, maintenance and management before purchasing.
Rent review clauses
Strong commercial leases include annual rent reviews — either fixed increases (e.g. 3% per year), CPI-linked, or market reviews. Fixed increases provide income certainty; market reviews can go up or down.
Due diligence is essential
Commercial property due diligence is more complex than residential. Always review the lease in full, check zoning, get a building inspection, verify outgoings history and engage a commercial solicitor before exchanging contracts.
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Frequently asked questions
What is a cap rate and how is it calculated?
A capitalisation rate (cap rate) is the ratio of a property's Net Operating Income (NOI) to its purchase price, expressed as a percentage. Formula: Cap Rate = NOI ÷ Property Value × 100. It is the most widely used metric for comparing commercial property investments and estimating property value.
What is Net Operating Income (NOI)?
NOI is your effective gross income (rent after vacancy allowance) minus all operating expenses — rates, insurance, management, maintenance and other costs. It excludes mortgage interest, depreciation and income tax. NOI is the foundation of commercial property valuation.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures return on the full property value regardless of financing. Cash-on-cash return measures the annual cash flow as a percentage of the equity you actually invested (your deposit). Cash-on-cash is more relevant for leveraged investors as it reflects your actual return on invested capital.
Are commercial property cap rates higher than residential yields in Australia?
Generally yes — commercial properties typically yield 5-8% compared to 3-5% for residential properties. However, commercial properties carry additional risks including longer vacancy periods, higher maintenance costs and more complex leasing arrangements. The higher yield compensates for these additional risks.
How do I finance a commercial property in Australia?
Commercial property loans typically require a 30-40% deposit (compared to 10-20% for residential). Interest rates are generally higher than residential rates. Lenders assess the lease strength, tenant quality and WALE heavily. Having a long-term lease with a quality tenant significantly improves your financing options and terms.