While residential property and negative gearing reforms continue to dominate headlines, one segment of the market has remained relatively insulated from the political noise, which is commercial property.
For many investors, commercial real estate is becoming an increasingly attractive alternative to residential investment, particularly as lending policies tighten and rental yields in some residential markets remain compressed. Unlike residential property, where investors often rely on a combination of capital growth and tax benefits, commercial property is fundamentally driven by income, tenant quality and business demand.
One of the key reasons commercial property has largely avoided the negative gearing debate is that commercial assets typically deliver stronger cash flow. While residential rental yields in major cities often sit between 2% and 4%, commercial property yields commonly range from 5% to 8% or higher, depending on the asset type, tenant profile and location.
Industrial warehouses, medical suites, retail shops, office spaces and mixed-use properties can all generate significantly stronger rental returns than their residential counterparts. This higher income profile can improve investment feasibility while also providing greater flexibility from a lending perspective.
Commercial Lending Criteria
Commercial lending differs from residential lending and is generally assessed more conservatively. Lenders typically consider:
- Property type and location
- Tenant quality and lease strength
- Remaining lease term
- Rental income and yield
- Investor experience
- Borrower financial position
- Overall risk profile
Most lenders will provide loan-to-value ratios (LVRs) of between 60% and 70% for standard commercial properties, although some lenders may extend to 75% for strong borrowers or specialised assets.
However, because commercial properties often generate higher rental income, lenders may place greater emphasis on the property’s income-producing ability when assessing serviceability.
Medical Practitioner Lending Advantages
One area that is often overlooked is the flexibility available to medical professionals and healthcare practitioners.
With commercial property and negative gearing remaining available, medical practitioners may have access to LVR finance capabilities of between 90% and 95%, depending on the lender, the intended purpose of the investment, the practitioner’s circumstances and overall financial position.
This enhanced borrowing capacity can create opportunities that may not otherwise be available to traditional investors. The status quo surrounding negative gearing in commercial property can therefore make investment feasibility more attractive and open market options across a broad range of opportunities, including:
- Brand-new commercial developments
- Established income-producing assets
- Medical suites
- Retail and office premises
- Value-add opportunities
- Knock-down and rebuild projects
For healthcare professionals looking to diversify their investment portfolio, commercial property can offer both strong income generation and long-term growth potential.
Using Existing Property as Collateral
Many investors are unaware that equity in existing properties can often be leveraged to assist with commercial acquisitions.
While a commercial lender may only advance 70% of a property’s value against the commercial asset itself, borrowers can sometimes utilise equity from their family home or investment properties as additional security.
This strategy can potentially allow investors to fund:
- The deposit
- Stamp duty
- Acquisition costs
- Associated fees
In some circumstances, investors may effectively achieve close to 100% funding of the purchase and acquisition costs without contributing significant cash savings.
For investors who have accumulated equity through residential property growth, this can provide an efficient pathway into higher-yielding commercial investments.
SMSF Ownership of Business Premises
Another increasingly popular strategy for business owners is purchasing the premises from which they operate through a Self-Managed Super Fund (SMSF).
Under appropriate circumstances and subject to professional accounting, financial and legal advice, an SMSF may purchase a commercial property and lease it back to the business operating from the premises.
This strategy can provide several potential advantages:
- Greater control over business premises
- Reduced reliance on external landlords
- Rental payments flowing into the superannuation environment
- Long-term wealth accumulation within the SMSF
- Alignment between business operations and retirement planning
- Potential tax advantages depending on individual circumstances
Rather than paying rent to a third-party landlord, the business effectively pays rent to the SMSF, helping build a valuable asset within the superannuation structure over time.
This strategy is particularly common among medical practitioners, allied health professionals, accountants, legal firms and established small business owners who occupy their own commercial premises.
Australian Taxation Office (ATO) https://www.ato.gov.au
A Diversification Opportunity
Commercial property is not without risk. Vacancy periods can be longer than residential property, tenant turnover can be more impactful and certain asset classes can experience cyclical demand fluctuations.
However, for investors seeking stronger cash flow, portfolio diversification and exposure to a market segment that remains less influenced by residential housing policy, commercial property continues to present compelling opportunities.
Importantly, commercial property’s appeal has never relied solely on negative gearing. Instead, it remains driven by fundamentals, tenant quality, lease security, rental income, location and business demand.
As investors continue to look beyond traditional residential markets, commercial property offers a combination of income generation, financing flexibility and strategic ownership opportunities that deserve serious consideration. Whether through direct investment, leveraging existing property equity, utilising specialised medical practitioner lending, or acquiring business premises through an SMSF, commercial property remains a valuable and often underappreciated component of a well-diversified property portfolio.
As always, these insights are intended to stimulate discussion rather than provide specific financial, taxation or legal advice. All investor’s circumstances are different, and professional advice should be sought before making any investment decisions. If you’d like an experienced team to work alongside your advisory network and help navigate the complexities of commercial property acquisition, Master Advocates has the expertise and market knowledge to guide you every step of the way.
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