Commercial Guide
Rental Yield For Commercial Space
Commercial rental yields are often quoted higher than residential, but rent-free periods, escalation clauses and tenant concentration change what that yield actually delivers.
Reviewed by Glenice Toh
The Yield Formula Is The Same, The Inputs Aren't
Gross and net yield are calculated the same way for commercial as for residential property. What differs is what feeds into "annual rent" — a commercial lease's headline rent is often offset by a rent-free fitting-out period, scheduled escalations that only kick in later, and potential GST on rental income if the landlord is GST-registered.
What A Quoted Yield Might Be Hiding
What A Quoted Commercial Yield Might Be Missing
- Whether the rent-free fitting-out period has been factored into the effective first-year yield, or only the post-fit-out rent.
- Whether rent escalations are already built into the current lease or are a future assumption.
- How many tenants the income relies on — a single-tenant unit concentrates vacancy risk far more than a multi-tenant retail podium.
- Whether GST applies to the rental income if the landlord is GST-registered, which affects net proceeds.
Vacancy Risk Is Concentrated, Not Spread Out
Where Quoted Yields Get Taken At Face Value
Frequently Asked Questions
Frequently Asked Questions
Is commercial rental yield usually higher than residential?
Headline gross yields are often quoted higher, but rent-free periods, GST and concentrated vacancy risk can narrow the actual net yield gap.
How does a rent-free fitting-out period affect yield?
It reduces effective income in the year it applies, so a yield calculated only on the post-fit-out rent can overstate the first year's actual return.
Does a single large tenant reduce risk?
It can provide income stability while the lease runs, but it also concentrates vacancy risk if that tenant doesn't renew.
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Rent-free periods, escalations and tenant concentration change the real return. Run the numbers before you commit.
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