A small industrial unit works differently to a house. The tenant is a business that signs on for years, usually pays the outgoings, and treats the place as the roof over their livelihood. Most of that works in your favour.
There are one or two things worth understanding before you buy, and we will walk you through them here, using a real example: the Industrial Workspaces at Imperial Business Park in Newcastle, priced from $539,900.
Key takeaways
- A small industrial unit is leased by a business, usually for three to ten years, and on a net lease the tenant commonly pays the rates, the insurance and some of the maintenance.
- Commercial gross yields typically run about 5% to 8%, against about 2% to 4% on residential.
- The main trade-off is vacancy. An industrial unit can sit empty longer between tenants than a house, so the depth of the local tenant pool matters more than the building itself.
- Commercial finance generally needs a larger deposit, commonly around 30%, on a shorter term and a slightly higher rate than a home loan.
- The Industrial Workspaces at Imperial Business Park in Blackhill, Newcastle start at $539,900 for a 96m² unit, with an estimated 4.9% to 5.0% gross yield and a first-year rental guarantee.
What Is a Small Industrial Unit, Exactly?
A small industrial unit is a warehouse with a bit of office attached, sold on its own title. You own the shed, someone runs a business out of it, and they pay you rent to do so.
The tenants are the trades and small operators you already know. A plumbing supplier, an electrician, a courier, a powder coater. They need a roller door, three-phase power and a spot to park the van, not a kitchen island and a second bathroom.
The four units at Imperial Business Park run from 96m² to 177m². Each one has a kitchenette, a private bathroom, on-site parking and a roller door tall enough for a truck. The tenant is a business, not a household. That single fact drives almost every difference below.
How Is Commercial Different From a Residential Investment?
Here is the trade in one line. A business tenant usually signs for years, not months, and often pays the rates, the insurance and some of the upkeep. That is the real difference from a house. The catch sits on the other side of it. If that tenant ever leaves, the unit can sit empty longer than a house would.
| What changes | Residential | Commercial / industrial |
|---|---|---|
| Typical gross yield | About 2% to 4% | About 5% to 8% |
| Lease length | 6 to 12 months | 3 to 10 years, with fixed annual increases |
| Who pays the outgoings | Usually you | Often the tenant (rates, insurance, some upkeep) |
| If it goes empty | Re-lets fast | Can sit empty longer between tenants |
| Finance | Smaller deposit, terms to 30 years | Bigger deposit, shorter term, higher rate |
| The tenant | A household | A business |
The yield ranges come from a national comparison by savings.com.au. The one row worth sitting on is the outgoings row. On a commercial lease the tenant often pays the rates, the insurance and some of the maintenance, so what you bank sits closer to what the tenant pays than it ever does on a house.
Not sure which side of this table fits your situation? We will run through it with you, at no charge.
Book a free 15 minute callWhy Are Investors Looking at Industrial Right Now?
Because the sheds are full and there are not enough of them. Industrial vacancy across Newcastle and the Lower Hunter has been running under 5%, with demand outpacing new supply, according to Colliers’ Hunter research. Small units let quickly when a tenant does move on.
Imperial Business Park sits about 24 minutes from the Newcastle CBD, next to the Thornton and Beresfield industrial precincts and the M1. That is an established industrial pocket, not a paddock waiting for a road.
Past demand is not a forecast, and we will not dress it up as one. The point is the tenant pool sitting underneath these units, because that is what re-lets a warehouse if the first tenant leaves.
What Does the Rent Look Like on These?
The entry unit is 96m² at $539,900, with an estimated rent of $500 to $520 a week and a gross yield of EST. 4.9% to 5.0%. The largest is 177m² at $859,900, with an estimated $795 to $825 a week.
Commercial works differently to residential here, and it works in your favour. On a net lease the tenant carries the rates, the insurance and much of the upkeep, so more of that rent reaches your pocket than the same headline figure would on a house you own. That is the quiet advantage of commercial: a yield near 5% on an industrial unit can out-earn a higher-looking gross on a home.
Every one of those figures is an estimate, and they are gross, before your holding costs. You still carry vacancy, management and loan costs.
What to Know Before You Buy
Every property has a catch, and this one is worth knowing up front. The main difference is vacancy. A warehouse can take longer to re-let than a house, so what protects you is a deep tenant pool, which is exactly why the location matters as much as the building.
Finance is the other one. Expect a larger deposit, usually around 30%, on a shorter term than a home loan. A broker who knows commercial will tell you where you sit before you commit to anything.
How the First-Year Rental Guarantee Works
On a brand-new unit, these come with a first-year rental guarantee. A property manager leases the space back for the first year, so your rent is covered from settlement while the first tenant is placed. On a new build, that takes the usual lease-up gap off the table.
It runs for the first year, and after that you are on a normal commercial lease. The two questions worth asking on any guarantee are who funds it and what the rent looks like in year two, and we will have both in writing before you sign. Answered up front, this is a genuine head start, not a gimmick.
Featured Property of the Week
Industrial Workspaces, Imperial Business Park, Blackhill, Newcastle NSW From $539,900
Four small warehouse-and-office units in an established Newcastle industrial estate, sold on single contracts that settle on completion. They are aimed squarely at the trades-and-suppliers tenant pool that keeps these estates full.
Entry unit: 96m² · EST. $500 to $520 a week · EST. 4.9% to 5.0% gross · 1 car park · single contract, settle on completion. The range runs to a 177m² unit at $859,900 with three car parks.
- Concrete-panel build, a 6.3m warehouse ceiling and a 4.2m by 4.8m roller door. It suits a courier, a trade or a supplier running a van or a small truck, which is exactly the tenant pool competing for these.
- Three-phase power, industrial LED lighting, a kitchenette and a private bathroom already fitted. Nothing to fit out, so a tenant can move in and trade from day one.
- About 24 minutes to the Newcastle CBD, beside the Thornton and Beresfield industrial precincts and the M1. That puts it in an established, in-demand industrial area, with a deep pool of local businesses ready to lease a unit like this.
- Single contract, settle on completion, with siteworks, council charges and standard construction costs inside the price. One loan, one settlement, and nothing to finish after handover.
Commercial Property Investment FAQs
Do I need a bigger deposit for a commercial property?
Usually, yes. Commercial lending is stricter than a home loan, and a deposit around 30% is common, on a shorter loan term and a slightly higher rate. The rent is stronger, so the loan can still stack up, but the cash you need at the start is larger than on a residential purchase. A broker who does commercial finance will tell you exactly where you sit before you commit to anything.
What happens when the first-year rental guarantee ends?
The guarantee covers the first year while a tenant is placed. After that, you are on a normal commercial lease, which is typically several years long with fixed annual increases built in. The risk that comes back at the end of year one is vacancy: if that tenant later leaves, an industrial unit can take longer to re-let than a house. That is why the location and the tenant pool matter more than the guarantee.
Is an industrial unit riskier than a house?
It is different, not simply riskier. A business tenant usually signs for years and often covers the outgoings, which a household never does. The yield is generally higher too. The trade is that a warehouse can sit empty longer between tenants, and a business tenant can fail in a way a household rarely does. Whether that suits you depends on your cash buffer and how long you could carry the unit empty if you had to.
What ongoing costs come with a commercial unit?
On a net commercial lease, the tenant commonly pays the council rates, the building insurance and some of the maintenance, which is one of the real advantages over residential. You still carry the loan, the property management fee and the cost of any vacancy. GST also applies to commercial property, so it is worth having your accountant map the full picture before you buy.
How Positive Income Properties Helps
We are not a real estate agent who disappears at settlement. We run a process we call DEAPS. We determine the right property for your budget and stage. We evaluate where you are in your investing. We assist you through the build using independent professionals we do not own. We provide the reports and analysis, and we source the tenant and management before handover.
The structural part matters most here. We do not have in-house brokers, conveyancers or insurers, on purpose, because in-house people do what they are told. We point you to independent ones instead. Gil has bought more than thirty properties himself, and last financial year the team sat in about 1,400 meetings. We have access to more than 100 builders across the country.
If you would like to talk it through, book a call with a consultant.
Book a free 15 minute call
Gil Elliott is the Managing Director and Founder of Positive Income Properties. Gil has a rich background in business consulting and property investment. All of these he gained in his nearly four decades of experience in the real estate and marketing industries.
