Not all commercial real estate is created equally with some offering more lucrative yields than others.
But just because an asset might be masquerading as a cash-flow king, should a small investor buy it?
CBRE director and head of Brisbane metro Mike Walsh said yield disparity could be found within each individual asset class depending on whether it is in a prime or secondary location.
He said while secondary-grade office locations in Brisbane could produce yields of up to 9 per cent, it was not the highest yield on offer.
”Secondary industrial is obviously going to throw up double digit yields, but would I recommend that investors go out there and buy (one)?” Mr Walsh said.
”If you’re going to acquire one of those assets, make sure you’ve priced in the risk appropriately and you’ve covered your downside.
”There’s a reason – if you’re going to buy an industrial asset that’s secondary and 12 per cent – naturally the assumption is that there’s some form of location issue, there’s obviously some sort of short-term risk that’s allowing you buy an asset at that sort of number.”
Blocksidge managing director Jonathan Blocksidge said regardless of which asset a small investor chose to buy, they must understand the underlying value proposition of commercial real estate.
”The fundamental of commercial property is the value of the property is rooted in the tenant covenant and any owner who doesn’t get that is heading for trouble,” he said.
”Anecdotally, I think an industrial shed with a good tenant covenant is a sound investment and it’s straightforward.
”It’s a legitimate option but it’s usually a big-ticket spend. Prudence would suggest that you don’t leverage too far.”
Mr Blocksidge said investors also needed to be aware that many industrial zones in Brisbane were located in flood zones.
But while industrial might offer the juiciest yields in Brisbane, Mr Walsh believes that there are better opportunities for small investors.
He said secondary-grade office locations could offer upside potential if there was also new infrastructure in the pipeline as well as catalyst projects being constructed.
”There are suburban markets, Stones Corner for example, where there’s been a new planning regime go in, there’s some major catalyst projects occurring there… they’re going to bookend that inner-south precinct and that will see the rejuvenation through there. There are some commercial holdings in that Stones Corner pocket, which will benefit from that uplift,” he said.
”At the end of the day, it’s the flight to quality and location is everything, so as long as there’s good public transport infrastructure there, there’s good retail amenity, there’s emerging projects, they’re the fundamentals for a good precinct which is ultimately what you want to invest in.”
