The Smart Approach to Purchase of Commercial Property Investment

Understanding Commercial Real Estate

The purchase of commercial property is a vastly different commercial proposition from buying a home. Where residential property is usually driven by emotional or lifestyle choices, commercial real estate is all about business, returns, and long-term growth.

Commercial properties include office buildings, retail spaces, industrial warehouses, and even service stations. Each asset class brings its own risks, tenant types, and income potential. Unlike residential tenants, who tend to come and go, commercial tenants often sign lengthy lease terms, creating more predictable cash flow for investors.

Commercial vs Residential Property

	Commercial Property	Residential Property
Types	Office buildings, retail spaces, warehouses	Houses, apartments, condos
Typical Tenants	Businesses, corporations	Individuals, families
Lease Length	Long-term (3–10+ years)	Short-term (6–12 months)
Income Stability	More predictable	Can be less predictable
Management Needs	More complex, especially in leased	Simpler, almost same lease every time
Risk Profile	Higher cost, steadier income	Lower cost, more turnover
Operating Hours	Usually business hours	24/7 occupancy
Regulation	Business zoning, codes	Tenant protection laws

A well-selected commercial investment property can balance out a residential property portfolio, providing diversification and access to stronger commercial yields.

An example of this is a property in New Farm, Queensland.
Both cost around $2,000,000. The residential property, 4 bedrooms 2 bathrooms, has a net income of $34,000 annually.
The commercial property 2 retail spaces, 1 office space, with a net income of $127,501 annually

The net income of the commercial property is 3.75 times better than the residential one.

What is Commercial Property Investing?

Commercial property investing involves purchasing a property with the intention of generating a profit through rental income, capital growth, or a combination of both. It is a popular investment strategy among individuals, businesses, and institutions looking to diversify their portfolios and achieve long-term financial goals. Commercial property investing can take many forms, including office buildings, retail spaces, industrial facilities, and more. With the right approach, commercial property investing can provide a stable source of income, tax benefits, and potential for long-term capital growth.

Benefits of Commercial Property Investing

One of the biggest drawcards of commercial property investment is the return. Commercial properties tend to offer significantly higher yields than residential ones, with better potential for capital growth over time.

Lease structures in commercial premises also favor the landlord. Outgoings like repair costs, insurance, and sometimes even goods and services tax (GST) can be passed on to tenants—something rarely possible in residential deals.

Another major perk? If managed right, a commercial property investment can be paid off in ten years or less, setting investors up for strong passive income. For those using self-managed super funds or discretionary trusts, the tax savings can be significant—capital gains tax, for example, may be reduced under certain structures.

Structuring Your Commercial Property Purchase

Choosing the right ownership structure can have a major impact on your financial outcome. Whether it's through a company, a family trust, or a self-managed super fund, each structure offers unique benefits and tax implications.

A company might access lower corporate tax rates of 25–30%, while discretionary trusts allow income distribution among lower-taxed beneficiaries. Meanwhile, SMSFs are taxed at just 15%—making them a compelling option for long-term commercial investment.

You should always seek advice from an accountant or lawyer to ensure your buying entity is right for your goals and situation.

Comparison of Ownership Structures in Australia

Below is a comparison of Companies, Family Trusts, and Self-Managed Super Funds (SMSFs) with referenced sources.

Aspect	Company	Discretionary (Family) Trust	SMSF
Tax Rate	25% for base rate entities, 30% otherwise. ATO	Income taxed at beneficiaries' marginal rates. ATO	Income taxed at 15% in accumulation phase. ATO
Income Distribution	Profits retained or paid as dividends taxed at shareholders' marginal rates.	Trustee distributes income to beneficiaries. ATO	Retirement income may be tax-free over age 60. ATO
Asset Protection	Limited liability protects shareholders' assets.	Assets held in trust are generally protected. ATO	Fund assets protected from creditors. ATO
Regulatory Requirements	Must comply with ASIC and ATO reporting.	Governed by trust deed; lighter reporting. Source	Strict ATO compliance and annual audits. ATO

Company Tax Rates
Companies in Australia are generally taxed at either 25% or 30%, depending on their size and business type.

If the company qualifies as a base rate entity (less than $50 million turnover and mostly active income), it pays 25%.
Larger or passive-income-heavy companies pay 30%.

You can confirm these rates directly with the ATO here:
https://www.ato.gov.au/Rates/Company-tax/

Discretionary Trusts
A discretionary trust doesn’t pay tax itself. Instead, the trustee chooses how to distribute the trust income to beneficiaries each year. Those individuals then pay tax at their own marginal rates. This setup can lower overall tax if income is distributed to people on lower tax brackets.

The ATO’s guide on how discretionary trusts are taxed is here:
https://www.ato.gov.au/business/trusts/types-of-trusts/discretionary-trusts/

Self-Managed Super Funds (SMSFs)
SMSFs are popular for long-term investments like property because of their concessional tax rates.

Income is taxed at 15%.
If the SMSF sells an asset held for over 12 months, it usually pays only 10% tax on the capital gain.

More details from the ATO:
https://www.ato.gov.au/Super/Self-managed-super-funds/Taxation/

Minimising Capital Gains Tax

Capital gains tax (CGT) is a significant consideration for commercial property investors. CGT is levied on the profit made from the sale of a commercial property, and it can be a substantial expense. However, there are strategies to minimise CGT, such as:

Holding the property for at least 12 months to qualify for the 50% CGT discount
Using a self-managed super fund (SMSF) to purchase the property, which can provide tax benefits and CGT relief
Implementing a tax-effective ownership structure, such as a trust or company, to reduce CGT liability
Consider a CGT rollover or deferral, which can allow investors to delay paying CGT until a later date

It is essential to consult with a tax professional or financial advisor to determine the best strategy for minimising CGT on a commercial property investment.

Financing Your Commercial Property Investment

Unlike residential mortgages, commercial property loans typically require more money upfront—usually a 20–30% deposit. This is one of the reasons many see the purchase of commercial property as having higher barriers to entry.

However, the trade-off is often worth it. Commercial loans tend to deliver better cash flow and in many cases, greater capital growth. Rates and terms can vary depending on the lender, the business premises, and the tenant's situation.

It's crucial to check how the loan will impact your business activity statement and whether you’ll need to pay GST on the purchase price (though the margin scheme can sometimes apply). Getting pre-approval before you purchase commercial property will also help with negotiations.

Commercial Property Loans and Interest Rates

Commercial property loans are used to finance the purchase of a commercial property. These loans typically have different interest rates and terms compared to residential property loans. Commercial property loans can be secured by a variety of lenders, including banks, credit unions, and private lenders. Interest rates for commercial property loans can vary depending on factors such as the loan amount, loan term, and borrower’s creditworthiness.

Some common types of commercial property loans include:

Fixed-rate loans, which offer a fixed interest rate for a set period
Variable-rate loans, which offer a variable interest rate that can change over time
Interest-only loans, which allow borrowers to pay only the interest on the loan for a set period
Line of credit loans, which provide borrowers with access to a revolving line of credit

It is essential to shop around and compare interest rates and loan terms from different lenders to find the best option for a commercial property investment.

Due Diligence and Research

Before you buy commercial property, it is essential to do your homework. That means going beyond the brochure and diving into the due diligence process.

Searches like title search, rates and water, company checks, and even contaminated land registers are standard. You will also want to review existing leases, check for arrears reports, and ensure the contract correctly identifies all key terms, including market rent, tenant obligations, and whether you are buying premises subject to any conditions.

Always ensure leases are disclosed, and that you have a clear understanding of the settlement date, any additional stamp duty, or whether you're liable for the next business activity statement period.

Market Trends and Outlook

The commercial property market is subject to various trends and outlooks that can impact investment decisions. Some current trends include:

Increased demand for industrial and logistics properties, driven by the growth of e-commerce and online retail
Growing interest in sustainable and environmentally friendly commercial properties
The shift towards flexible and co-working office spaces, driven by changes in workforce demographics and preferences
Increased focus on technology and innovation in commercial property development and management

It is essential to stay informed about market trends and outlooks to make informed investment decisions and maximise returns on a commercial property investment.

Finding and Acquiring Commercial Property

In the commercial market, location is everything. You want solid transport networks, retail amenities, and access that makes it easy for tenants to attract customers.

Look for tenanted buildings with a strong tenancy mix, low vacancy rates, and up-to-date lease terms. If there are vacant shops, understand their commercial viability—can they be leased quickly, or do they present a risk?

It also helps to work with a commercial sales agent or leasing specialist who knows the local commercial property market and can spot good deals and reliable potential tenants. Let McGees Property help you.

What Makes a Good Commercial Investment?

A good commercial investment property typically has a combination of the following characteristics:

Location with Economic Fundamentals

A property located in a well-connected area with strong population or business growth, and close proximity to infrastructure, services, and complementary businesses, tends to attract consistent tenant demand and long-term value.

High-Quality and Diversified Tenant Mix

A good commercial investment includes reliable tenants who are financially stable, operate with a sound business model, and understand their profit and loss. Ideally, There is a mix of main and smaller tenants, each with long leases that end at different times. This helps keep income steady and reduces the risk of having the whole building empty at once. This provides a stable cash flow, reduces vacancy risk, and enhances the property's resilience during market fluctuations.

Potential for Income and Capital Growth

Properties with built-in rental escalations, potential for market rent increases, or located in areas undergoing gentrification or infrastructure upgrades offer the opportunity for both improved rental income and long-term capital appreciation.

Low Vacancy Risk and Strong Market Demand

Assets located in areas with high occupancy levels and limited supply of comparable properties are more likely to retain tenants, attract new ones quickly, and maintain steady income even in softer markets.

Opportunities to Add Value

Properties that offer potential for refurbishment, lease restructuring, improved management, or future redevelopment can unlock additional value, increasing both income and the asset's market worth.

Sustainable Operating Costs and Regulatory Compliance

A building with efficient outgoings and full compliance with zoning, fire safety, building regulations, and environmental standards is more attractive to tenants and helps preserve long-term investment value.

Strong Property Management

Proactive and professional property management ensures tenants are supported, lease obligations are met, maintenance is up to date, and rental income is collected on time—all of which contribute to investment performance and asset preservation.

It is essential to conduct thorough research and due diligence to identify a good commercial investment property that meets these criteria and aligns with investment goals and risk tolerance.

Adding Value to Your Commercial Investment

Adding value to your commercial investment doesn’t always mean a major renovation. Strategic moves like buying under market value, subdividing spaces, or adding features like storage or parking can boost your asset’s appeal.

Extending the lease term, upgrading fit-outs, or negotiating better terms during a lease review can also increase the value of your investment property. A more secure income stream means a higher valuation down the line—and better terms if you ever sell.

Investing in Commercial Property in Australia

The Australian commercial property market is worth over $11 trillion and continues to be a key part of many investor portfolios. However, like all investments, timing and strategy matter.

Some commercial property types—like office spaces—are more sensitive to economic shifts, while others, such as industrial or retail space, tend to be more stable. Choosing a recession-proof asset and assessing its long-term demand is critical.

Investors should also keep an eye on interest rates, broader market trends, and legislative changes impacting stamp duty, capital gains tax, and the way GST is generally imposed.

Final thought

Purchasing a commercial property is not something to take lightly. It is a major commitment and one with many moving parts—from lease reviews and ownership structures to commercial property loans and tax planning.

Always have a seller’s lawyer review the sale contract, and make sure you understand your rights and obligations before signing. The right investment journey starts with smart planning, good advice, and a clear understanding of the commercial proposition in front of you.

With the right team, the right property, and the right plan, investing in commercial real estate can be a great investment—one that provides strong returns, consistent cash flow, and long-term growth.

Contact Gavin Moore today to help you purchase your commercial real estate today.

For a complete list of weekly commercial transactions in Queensland, visit McGees Wrap Up | McGees Property Brisbane

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute legal, financial, or professional advice. While we strive for accuracy, we make no guarantees regarding the completeness or timeliness of the content. Always seek independent advice before making any financial or real estate decisions. We are not liable for any loss or damages arising from your reliance on the information provided.

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