A Changing Landscape. An Opportunity to Think Differently.
Changes to the SMSF property investment landscape have prompted investors to reconsider how they access property through super.
With new limited recourse borrowing arrangements (LRBAs) for residential property no longer permitted under the rules effective from 10 August 2026, eligible commercial property presents an alternative for SMSF investors looking to incorporate property into their retirement strategy.
For investors exploring this asset class, the appeal extends beyond a headline rental yield. Income potential, depreciation, tenant arrangements and the underlying quality of the property all contribute to the investment proposition.
What makes commercial property attractive?
Commercial property can offer higher rental yields than residential investments, with leases that often run for several years and include negotiated rent reviews. Depending on the lease, tenants may also contribute to rates, insurance, maintenance and other property outgoings.
For an SMSF, this can provide a structured income stream alongside the potential for long-term capital growth.
New commercial property also offers the advantage of modern building standards, contemporary layouts and facilities designed around current business requirements, supporting tenant appeal and reducing the need for immediate upgrades.
Let's look at a practical example.
Consider a commercial property purchased for $1 million, with a $740,000 interest-only loan at 6.2%.
Rental return
Measure | Annual figure |
Gross rental income | $81,791 |
Operating expenses | $14,548 |
Gross rental yield | 8.18% |
Net rental yield | 6.72% |
The net yield is calculated after operating expenses, but before financing costs and tax. Depending on the lease structure, a portion of the property's operating outgoings may be recoverable from the tenant, helping reduce the owner's ongoing holding costs.
Cash flow in year one
After $45,880 in annual loan interest, the model projects:
Pre-tax cash flow: $21,363 per year.
After-tax cash flow: $18,623 per year, or approximately $358 per week.
Initial cash outlay: $321,860, including acquisition costs.
Projected growth over 10 years
Assuming 5% annual capital growth and 2.5% annual rental growth, the projection estimates:
Future property value: $1,628,895.
Equity at year 10: $888,895.
Estimated profit after capital gains tax: $615,064.
These figures illustrate how rental income, financing, tax and long-term capital growth can combine to shape an investment's overall performance. They are projections rather than guarantees, and actual outcomes depend on the property, lending terms, expenses and individual tax circumstances.
Beyond the rental yield: GST and depreciation
New commercial property can offer additional considerations that influence the overall investment economics.
Depending on the transaction, GST may be payable on a new commercial property purchase. An eligible GST-registered SMSF may be entitled to claim an input tax credit where the acquisition is for a creditable purpose, and the relevant requirements are met. This can reduce the ultimate GST cost, although the fund may need to finance the GST until the credit is claimed.
Commercial property may also provide eligible capital works and plant and equipment depreciation deductions. For many eligible commercial buildings, capital works deductions are available at 2.5% annually, subject to the applicable requirements. New construction and eligible building assets can therefore provide deductions over time, depending on the property's construction costs and asset composition.
For SMSF investors, these factors should be assessed alongside borrowing costs, liquidity requirements and the fund's broader retirement strategy.
Location is fundamental to investment quality.
A warehouse's long-term prospects depend on the businesses that need it and the economic activity surrounding it.
Population growth, employment, infrastructure investment, freight access, rental demand and competing supply all help identify locations with strong underlying fundamentals.
At Calla Property, we also consider property-specific factors such as flood, fire and crime risks, alongside accessibility, building quality and the surrounding industrial landscape. Combined with the tenant's business and lease arrangements, this research helps build a clearer picture of the property's long-term prospects.
A different asset class requires a different assessment.
New commercial property can offer compelling opportunities for investors seeking income through super, but it also involves different financing requirements, ownership costs and leasing considerations from residential property.
The objective is to identify an asset where the purchase price, income potential, location and investment structure work together to support the investor's goals.
At Calla Property, we look beyond the advertised return to consider the broader investment proposition and the factors that may influence its long-term performance.
If you're reviewing your SMSF investment strategy and considering new commercial property, let's start a conversation about the opportunities worth exploring.
The right investment starts with the right research.
The information contained in this article is provided for general information purposes only and does not constitute financial advice, investment advice, or a recommendation by Calla Property. Past performance is not a guarantee of future results, and no guarantees or representations are made regarding the outcomes of any investment or property decision. Readers should seek independent financial, legal and/or professional advice before making any decisions. Calla Property accepts no responsibility or liability for any decisions made by clients or readers based on the information provided or for any outcomes arising from those decisions.
+61 485 976 989 | +61 468 190 823 | +61 482 080 189
Create value today. Build wealth for tomorrow.
Comments