Commercial Property Yield Calculator

There's no single answer that applies across all commercial property types, and anyone who gives you a universal figure is oversimplifying. That said, there are practical ranges worth knowing. Based on what I see across our lender panel and the transactions we work on, gross yields for metro commercial property in Australia typically range from about 4.5% for well-tenanted medical and healthcare assets through to 7.5% or higher for secondary industrial assets in regional locations.

What matters more than the yield in absolute terms is the spread between yield and your borrowing cost. If you can borrow at 6.20% for an investment property and the gross yield is 5.8%, you have a negatively geared position before expenses are even considered. A gross yield of 7.0% at the same rate gives you a 0.8% positive spread before expenses, which may still produce positive cash flow depending on the expense structure. If you're weighing up a purchase, our commercial property investment loans page covers how these deals are structured, and you can run your numbers through the cash flow calculator alongside the yield calculator for the full picture.

These three metrics are related but measure different things, and confusing them is one of the most common mistakes first-time commercial buyers make. Here's each one in turn:

Gross yield is the simplest: annual rent divided by purchase price. It ignores all expenses and gives you a rough headline return.

Net yield adjusts for vacancy and operating expenses before dividing by the purchase price, so it's the more realistic number for investors because it reflects what you actually receive after holding costs.

Cap rate uses the net operating income, which is the income after expenses but before loan repayments and tax, and divides that by the purchase price. Cap rate is how commercial valuers and institutional buyers assess market value, and it's the standard for comparing properties on an equal basis regardless of how they're financed.

The Property Council of Australia publishes regular cap rate data across major asset classes if you want market context.

Commercial property yields are generally higher than residential yields in Australia, which is one of the reasons investors looking at commercial are often surprised by the headline numbers. Residential yields in capital cities have been sitting in the 3.0% to 4.5% gross range for most major markets. Commercial property typically yields 5.0% to 7.5% gross depending on property type and location.

The higher yield reflects higher risk relative to residential. Commercial leases are longer and the income can look more stable, but vacancy periods between tenants are typically longer too. A residential property vacant for a month is a manageable problem. A commercial property vacant for six months is a much more serious cash flow event. Commercial lending terms are also more conservative, with lower LVRs and income assessment based on the property's ability to service the debt. The borrowing capacity calculator explains the DSCR methodology lenders apply. Yields also move with the market, so it's worth checking current conditions in our commercial property market insights, including city-level detail for Sydney and Melbourne.

Owner-occupiers think about yield differently from investors, and in my experience many of them don't frame their purchase decision in yield terms at all. That's a missed opportunity, because the yield lens is actually one of the most compelling arguments for buying your own premises.

For an owner-occupier, the relevant yield is the implied return you capture by owning rather than leasing. If comparable premises in your area lease for $90,000 per year and you can purchase for $1,200,000, the implied yield is 7.5%. If your loan rate is 5.95% as an owner-occupier, you have a positive spread of 1.55% from day one, before any consideration of capital growth. I recently worked with a medical practice owner in Brisbane who had been leasing for 12 years. When we framed the purchase in these terms, the cumulative rent she'd paid was well over $1 million. She bought. I generally recommend looking for an implied yield that exceeds your expected commercial property loan rate by at least 0.5%.

Yes, and it's one of the quiet advantages of owning rather than leasing. As you pay down the loan and the property grows in value, you build equity you can later put to work, often to fund the next purchase, expand the business, or improve the premises. A lease gives you none of that; every payment is gone.

Releasing that equity is done through a refinance once the value has grown, and it needs a fresh valuation to confirm the current figure. I've set out how it works, how much you can typically access, and what it can be used for in our guide on how to release equity from commercial property. It's worth understanding early, because the yield you lock in today is only part of the long-term ownership story.

Tenancy quality has a direct and material effect on both the yield a property commands in the market and the yield lenders will accept for financing purposes.

In the market, properties with strong tenancies, specifically national tenants on long leases with annual rent reviews, are priced at tighter cap rates than equivalent properties with weaker tenants or shorter leases. The same building can sell at a 5.5% cap rate with a national tenant on a 10-year lease and at a 7.0% cap rate with a small business on a two-year lease. Tighter cap rates mean higher purchase prices for the same income.

From a lending perspective, the tenancy quality also affects how lenders shade the rental income in their serviceability calculations. I've seen lenders apply a 60% shading factor to month-to-month tenancies instead of the standard 75%, which directly reduces borrowing capacity for that property. Before you make an offer, it's worth understanding how the tenancy structure will be treated by lenders, not just how it affects the yield figure. Get in touch with our team and we can walk through the specific scenario.

Yes, and this is one of the most useful applications of the cap rate metric. Commercial property is most commonly valued using the income capitalisation method, which divides the net operating income by the prevailing cap rate for that property type in that location. The result is the implied market value.

For example, if a property generates a net operating income of $65,000 per year and comparable sales in the area are trading at cap rates of 6.5%, the implied value is approximately $1,000,000 ($65,000 divided by 0.065). If the vendor is asking $1,150,000, they're effectively asking you to accept a cap rate of 5.65%, which is tighter than comparable sales suggest. That's a negotiating position backed by market data rather than a gut feeling about price.

It's worth understanding the full picture of how commercial property is valued before you go to contract, because lenders run their own valuation using this same method. If their assessment of the cap rate differs from yours, the property may value lower than the purchase price, affecting how much they'll lend. If you want help thinking through the yield and financing picture for a specific property, book a discovery call with our team.