Unlocking the Benefits of Australian Commercial Property: A Guide for Expatriates and Foreign Investors

Australia’s commercial property market is a highly attractive investment opportunity for expatriates and foreign investors. Known for its strong net returns, tax advantages, and tenant-friendly lease structures, commercial real estate offers unique benefits that complement a well-rounded property portfolio.

1. The Benefits of Commercial Property Investment 

Commercial property offers several features that set it apart as a strong investment option:

Net Returns: Strong and Predictable

One of the key differences between commercial and residential property is the way returns are calculated. Commercial property works on net returns, where tenants typically cover most outgoings, such as:

• Property management fees
• Land tax
• Insurance
• Council rates
• Maintenance costs

This structure allows investors to enjoy returns ranging from 5% to 8% net, providing a predictable income stream with minimal additional expenses.

Depreciation Benefits

Australian commercial property offers significant depreciation benefits, allowing investors to claim deductions for:

• The building’s structure (capital works), at 2.5% per annum for up to 40 years from the date of construction (for buildings built after 16 September 1987).
• Plant and equipment (fixtures like air conditioning, carpets, or office fittings), which depreciate based on their effective life, as determined by the ATO.

It’s important to note that depreciation is only claimable on eligible assets, so not all older properties will qualify for capital works deductions. However, plant and equipment depreciation often applies regardless of the building’s age, particularly in commercial settings where tenants may add fit-outs.

Long-Term Leases and Income Growth

• Commercial leases typically span 5–10 years, offering consistent cash flow.
• Most leases include annual rental increases, either fixed (e.g., 3%) or tied to the Consumer Price Index (CPI), ensuring income growth over time.

Portfolio Diversification

• Adding commercial property to an investment portfolio provides diversification, reducing exposure to residential market fluctuations.
• With multiple asset classes available (industrial, retail, medical, and office), investors can select properties that align with their risk tolerance and financial goals.

2. Key Strategies for Commercial Property Success

To maximise the benefits of commercial property, investors should adopt a strategic approach:

Focus on High-Growth Locations

• Cities like Brisbane and Perth, alongside regional hubs, are benefiting from infrastructure investment, population growth, and economic expansion.
• Proximity to major transport links and industrial corridors enhances a property’s long-term value.

Evaluate Lease Strength and Tenant Quality

• Long-term leases with reputable tenants reduce risk and provide income stability.
• Sectors such as healthcare and logistics often attract high-quality tenants, offering dependable returns.

Leverage Depreciation

• Engage a quantity surveyor to prepare a tax depreciation schedule, ensuring you claim the maximum allowable deductions for your property.
• Depreciation benefits significantly boost after-tax returns, especially for investors with complex tax obligations.

Work with Industry Professionals 

• Engaging experts like buyers agents and property managers ensures that investors have access to off-market opportunities and local market insights.
• Experienced professionals can also assist with due diligence, lease negotiations, and tenant selection.

3. Why Commercial Property Stands Out in Australia

To maximise the benefits of commercial property, investors should adopt a strategic approach:

Economic Stability and Transparency

• Australia’s resilient economy and regulated property market provide a secure environment for foreign investors.
• The availability of comprehensive market data allows for informed decision-making.

Tenant Responsibility for Outgoings

• Commercial leases in Australia place most outgoings on the tenant, including maintenance, rates, and insurance, significantly reducing the investor’s operational costs.

Diverse Sector Growth

• Industrial, medical, retail, and office sectors all offer distinct opportunities, allowing investors to align their purchases with their goals.

Favourable Tax Environment

• In addition to depreciation benefits, Australia’s tax framework offers several incentives for investors, including deductions for borrowing costs and expenses related to managing investment properties.