Commercial Property Yields Australia: What Is a Good Yield?
General information only, not financial, tax or legal advice. Yields move with the property cycle and vary by asset type, location and lease terms, so confirm current market evidence with a local valuer or agent before you rely on any number. Speak to a licensed adviser about your own situation.
TL;DR
Commercial property yields in Australia are usually quoted between about 4 per cent and 9 per cent, but the number alone tells you almost nothing. Gross yield ignores costs. Net yield, which deducts non-recoverable outgoings, is the only figure worth deciding on, and it typically sits 1 to 2 percentage points below the gross figure. A high yield is generally the market pricing in risk: a weak tenant, a short lease, a thin location or looming capital works. A good yield is one that properly compensates you for that risk, after costs and after finance.
Why "what is a good commercial property yield" is the wrong question on its own
Yield is a price signal, not a quality score. It is income divided by value, so when buyers are confident they bid the price up and the yield falls. When they are nervous, they demand a higher yield first.
So a high yield is usually the market telling you something. It is the discount buyers require for a tenant who may not renew, a building that needs money spent on it, or a town with a shallow pool of replacement tenants.
The useful question is not "what yield should I be getting", it is "what risks am I being paid to carry, and is the payment fair". That lens sits at the centre of commercial property investing in Australia.
Gross yield, net yield and cap rate explained
Three numbers get used interchangeably in marketing material. They are not the same thing, and the gap between them is where most beginner mistakes live.
Gross yield
Gross yield is annual rent divided by the purchase price.
Gross yield = annual gross rent / purchase price
It ignores outgoings, management, vacancy and acquisition costs, which makes it the easiest number to calculate and the easiest to use to make a property look better than it is.
Net yield
Net yield deducts the costs the owner actually wears, then divides by the price.
Net yield = (annual gross rent - non-recoverable outgoings and owner costs) / purchase price
The honest version divides by total outlay rather than contract price, so duty, legals, due diligence and immediate works are included. Which costs you can pass to the tenant depends on the lease and on state legislation, which is why commercial property outgoings deserve close reading.
Cap rate (capitalisation rate)
The cap rate is the market's required net return on an asset at a point in time. The arithmetic resembles net yield, but it is applied to sustainable market net income rather than the rent a particular tenant happens to pay today.
Value = market net income / cap rate
Valuers and agents use it to convert income into value, which makes it the central mechanic in how to value commercial property. If passing rent sits above market, the quoted yield flatters the asset and the real cap rate is lower.
One property, three very different numbers
A generic worked example, with illustrative figures only.
Say a property is offered at $1,200,000 with a single tenant paying $96,000 a year. Acquisition costs of about $70,000 cover duty, legals and due diligence, taking total outlay to $1,270,000. Non-recoverable owner costs run at roughly $14,000 a year, covering management, insurance gaps, a repairs allowance and the land tax the lease does not recover. Market net rent for comparable space is assessed at $78,000.
Gross yield on price: Calculation: $96,000 / $1,200,000; Result: 8.00%
Net yield on price: Calculation: $82,000 / $1,200,000; Result: 6.83%
Net yield on total outlay: Calculation: $82,000 / $1,270,000; Result: 6.46%
Market cap rate: Calculation: $78,000 / $1,200,000; Result: 6.50%
One property, one contract, four defensible percentages. The advertisement quotes the 8. Your bank, your accountant and your cash flow live with the 6.46.
Why net yield is the only one worth deciding on
Gross yield is a fast first filter on a long list. Beyond that it is noise, because the costs it ignores are neither small nor evenly spread. Two assets can both show an 8 per cent gross yield while one delivers 7.2 per cent net and the other 5.9 per cent, and the difference is lease structure, outgoings recovery, management load and building condition.
Net yield also forces you into the lease and the outgoings schedule. If you cannot build one from source documents, you do not yet know what you are buying.
Commercial property yields Australia: the bands by sector
The bands below are broad, indicative and move with the cycle. They are not current market quotes. Yields compress when credit is cheap and expand when rates rise, so read them as relative positioning, not figures to rely on.
Industrial and warehouse: Metro (indicative): Low, often the tightest in the market; Regional (indicative): Noticeably higher
Medical and allied health: Metro (indicative): Low to moderate; Regional (indicative): Moderate
Childcare: Metro (indicative): Low to moderate; Regional (indicative): Moderate to high
Strip and neighbourhood retail: Metro (indicative): Moderate; Regional (indicative): High
Suburban office: Metro (indicative): Moderate; Regional (indicative): High
Secondary or single-tenant regional assets: Metro (indicative): Not applicable; Regional (indicative): Highest, usually for good reason
Across recent cycles, quality metro industrial has commonly transacted in the mid 4 per cent to low 6 per cent range, while single-tenant regional assets have sat at 7 per cent to 9 per cent or above. That spread is the point, and it is much of why industrial property investment is so competitively bid. Absolute levels change quickly, so check recent comparable sales in your target market.
What drives a yield up or down
Tenant covenant
The tenant is the biggest single driver. A listed company, a government department or a national franchise group with audited accounts supports a lower yield than an unproven local operator with no financial history and no guarantor.
Lease term and WALE
A long remaining term with structured annual increases is worth real money, because it pushes vacancy risk years away. Across multiple tenants, the WALE averages remaining term weighted by income, and a longer WALE supports a firmer yield.
Location and vacancy
Depth of demand matters more than postcode prestige. Ask how many businesses could occupy this exact space if the tenant left, and how long comparable space nearby has sat vacant.
Building age and capital expenditure risk
An ageing roof, dated services or an unresolved essential services issue carries a capital bill the yield has to fund. A high yield on a tired building is often a sinking fund in disguise.
Lease type
Under a net lease the tenant carries most outgoings, so the gap between gross and net yield is narrow. Under a gross lease the owner absorbs them and the gap widens. Net lease versus gross lease moves your net yield before you negotiate a dollar of rent.
Why 9 per cent is not automatically better than 6 per cent
Consider a single-tenant regional building on a 9 per cent yield against a metro industrial estate on 6 per cent.
The 9 per cent asset has one income stream. If that tenant leaves, income goes to zero, not down a bit. Re-letting can take many months in a thin market, incentives may be needed, the bank may revalue on a vacant basis, and the exit pool is small.
The 6 per cent asset in a deep metro industrial market has multiple potential occupiers, stronger rental growth prospects and a wide buyer pool at resale. Lower quoted yield, lower risk of a catastrophic income gap, and often stronger total commercial property returns. The question is never which number is bigger, it is which risk-adjusted outcome you would rather own for ten years.
Yield, interest rates and whether the deal is positively geared
Yield does not exist in isolation from the cost of money. The test is whether your net yield sits above your all-in borrowing cost, including margin, line fees and principal repayments.
If net yield exceeds that cost, the property contributes cash from day one and the deal is positively geared. If it sits below, you are topping up the holding from other income, which can be valid but is a very different proposition. That spread, not the headline yield, decides whether a purchase helps or strains cash flow, and it is the first thing to model when you arrange commercial property finance. Rates move, so run the numbers at a materially higher rate than today's.
How a small cap rate shift moves value
Because value equals net income divided by cap rate, small movements in the rate produce large movements in price. Using the $82,000 net income from the example above:
5.5%: $1,490,909
6.0%: $1,366,667
6.5%: $1,261,538
7.0%: $1,171,429
7.5%: $1,093,333
Half a percentage point of cap rate movement is worth roughly $100,000 here. That cuts both ways, and it is why rate rises reduce values even when rents are stable.
The same lever works through income. Lift net income from $82,000 to $95,000 by renegotiating the lease, recovering outgoings properly or leasing vacant space, and at a 6.5 per cent cap rate the value moves to about $1,461,538. That is the logic behind value-add strategies, and a control residential investors do not have, one of the clearest differences in commercial versus residential property investment.
Where to go from here
Build your own net yield from the lease, the outgoings schedule and your real acquisition costs, then ask what risk that yield is paying you to carry. The advertised number is a starting point for questions, not an answer.
Cal Doggett has spent more than 20 years in Australian commercial property and has transacted over $550M. The way he assesses yield is covered in the Fortify Your Wealth video series at https://investorcode.com.au/fortify-your-wealth-series. For the full framework, including due diligence and lease analysis, the Commercial Property Mastery course at https://investorcode.com.au/online-course walks through it in detail.
Frequently asked questions
What is a good commercial property yield in Australia?
A good yield fairly compensates you for the risk in the asset, after costs and after finance. As a frame, quality metro assets with strong tenants have historically traded on lower net yields and secondary regional assets higher. Judge net yield, tenant strength and lease term, not the biggest percentage.
What is the difference between net yield and gross yield?
Gross yield is annual rent divided by price and ignores all costs. Net yield deducts non-recoverable outgoings and owner costs such as management, insurance and structural repairs, ideally dividing by total outlay including duty and legals. Net yield is typically 1 to 2 percentage points lower and is the decision number.
Is a cap rate the same as a yield?
They use similar arithmetic but serve different purposes. A quoted net yield reflects the rent a specific tenant pays today. A cap rate reflects the market's required return applied to sustainable market net income. If passing rent sits above market, the quoted yield looks higher than the true cap rate.
Why do regional commercial properties have higher yields?
Higher yields compensate for thinner demand. Regional markets usually have fewer potential replacement tenants, longer re-letting periods, weaker rental growth, heavier reliance on a single industry or employer, and a smaller buyer pool at resale. The extra income is payment for that risk, not a free upgrade in returns.
Does a higher yield mean a better investment?
Not on its own. A high yield commonly signals a weak tenant covenant, a short remaining lease, a specialised building, deferred capital works or a location with limited demand. Total return over a full hold period depends on income security, rental growth and exit value, not the percentage quoted at purchase.
How do interest rates affect commercial property yields?
Rising rates generally push yields higher, because investors require a greater return above the cost of debt, and higher yields mean lower values for the same income. Rates also decide whether a deal is positively geared. Stress test any purchase at a rate well above the prevailing one.