---
title: "How to Buy Commercial Property in Australia — The Complete Process in Plain English"
description: "Commercial property isn't just shops. Offices, warehouses, childcare centres, aged care — anything that generates business rent. Here's the full buying process from budget to settlement."
author: Joey Don
date: 2023-07-06
category: Guides
url: https://premiumrea.com.au/blog/commercial-property-buying-process-australia-guide
tags: ["commercial property", "buying process", "investment guide", "due diligence", "property management", "Australia"]
---

# How to Buy Commercial Property in Australia — The Complete Process in Plain English

*By Joey Don, Co-Founder & CEO at PremiumRea — 2023-07-06*

> Commercial property isn't just retail shopfronts. It's warehouses, offices, medical suites, childcare centres, aged care facilities — anything that hosts a business and generates rental income. Here's how the buying process actually works.

When most people hear "commercial property," they picture a corner shop with a cafe downstairs. Fair enough — retail is the most visible type. But the commercial property universe is vastly larger than that.

Office buildings. Industrial warehouses. Logistics hubs. Medical clinics. Veterinary practices. Childcare centres. Aged care facilities. Petrol stations. Car dealerships. Fast food outlets. Even car washes.

Anything that houses a business and generates rental income from that business is commercial property. And the core proposition is simple: you buy the property, a business pays you rent, and the rental income funds the loan. The asset appreciates over time, and you build wealth without running the business yourself.

That said, the buying process is different from residential in several important ways. Today I'm going to walk you through each step — from initial budgeting through to settlement and ongoing management. I've bought commercial assets myself and advised clients through the process, so this is practical rather than theoretical.

## Step 1: Clarify your budget and lending position

Commercial lending works differently from residential. The differences matter.

**Deposit requirements.** Most commercial lenders require 30-40% deposit, compared to 10-20% for residential. Some will stretch to 70% LVR (loan-to-value ratio) for strong borrowers with solid tenants on long leases. If you can demonstrate owner-occupier use — meaning you're running your own business from the premises — some lenders will offer up to 100% financing, though this is rare and requires exceptional circumstances.

**Interest rates.** Commercial rates are typically 0.5-1.5% higher than residential investor rates. Expect somewhere between 6.5-8% in the current environment, depending on the lender, the tenant quality, and the lease length.

**A nice surprise for foreign buyers.** Unlike residential property, commercial purchases don't attract the additional foreign buyer costs. No FIRB application fee. No foreign purchaser stamp duty surcharge. No foreign owner land tax surcharge. No absentee owner levy. For international investors, this makes commercial property significantly more cost-effective than residential on a like-for-like basis.

Before looking at any properties, sit down with a commercial lending broker (not a residential broker — they're different specialisations) and get a pre-approval. Know your numbers before you start looking.

## Step 2: Set up the right holding structure

This is the step that saves or costs you the most money over the long term. Getting it wrong is expensive and difficult to fix.

Do NOT buy commercial property in your personal name. The reasons:

**Asset protection.** If a tenant, visitor, or contractor is injured on the property and sues, your personal assets are exposed. A company or trust creates a legal barrier between the property and your personal wealth.

**Tax efficiency.** Company and trust structures offer different tax treatment options. A discretionary trust can distribute rental income to beneficiaries in lower tax brackets. A company pays a flat 25-30% tax rate regardless of the income level. The right structure depends on your total income profile.

**Future flexibility.** If you want to bring in partners, restructure ownership, or transfer the asset to the next generation, a company or trust makes this vastly simpler than personal ownership.

Spend $2,000-$5,000 setting up the correct structure with a commercial property accountant before your first purchase. It's the highest-ROI professional fee you'll ever pay.

A common structure we see among our clients: a discretionary family trust with a corporate trustee. The trust owns the property, the corporate trustee manages decisions, and income is distributed to family members according to their tax position. Simple, flexible, and well-established in Australian property tax law.

## Step 3: Find the right property

Commercial property selection is a different discipline from residential. The variables that matter most:

**Tenant quality and lease terms.** A commercial property is only as good as its tenant. A five-year lease with a national pharmacy chain is fundamentally different from a month-to-month arrangement with a startup cafe. The tenant determines your income certainty, your financing terms (banks love long leases to quality tenants), and your eventual resale value.

**Net yield.** Commercial yields are quoted as net — after outgoings like council rates, insurance, and maintenance are deducted. A 5% net yield on a $1 million commercial property is $50,000 per year in your pocket (before loan repayments). Compare that to residential gross yields of 3-4% that become 2-2.5% net after expenses.

**Location fundamentals.** For retail: foot traffic, parking, visibility. For industrial: truck access, loading docks, proximity to highways. For offices: public transport, parking ratios, floor plate efficiency. Each commercial sub-type has its own location criteria.

**Zoning and permitted uses.** Commercial zoning determines what activities can operate from the premises. A property zoned General Residential can't host a warehouse. A property zoned Industrial can't host a medical clinic (usually). Check the zoning before you fall in love with a building.

Research the market thoroughly. Understand vacancy rates in your target area — a 2% vacancy rate means demand is strong and you'll find tenants easily; a 10% rate means you might sit empty for months. Understand what comparable properties are renting for per square metre. And understand the cap rate (capitalisation rate) benchmarks for your asset class and location.

A commercial buyers' agent can compress months of research into weeks. We work with clients across both residential and commercial acquisitions and can identify opportunities that aren't publicly listed.

## Step 4: Due diligence — this is where deals are won or lost

Commercial due diligence is more complex than residential. Skip any of these checks and you're gambling.

**Financial due diligence.** Request the property's full financial records from the vendor. You want to see:
- Current lease agreements (term, rent, annual increases, options)
- Rental payment history (is the tenant paying on time?)
- Outgoings schedule (council rates, water, insurance, body corporate if applicable)
- Any rent incentives or abatements in place
- GST status of the sale (going concern vs standard supply — this matters enormously for stamp duty and GST liability)

**Legal due diligence.** Your solicitor needs to review:
- Title search and encumbrances
- Lease documents (are the terms enforceable? Any unusual clauses?)
- Tenant's financial standing (credit checks, business registration status)
- Any outstanding compliance notices from council
- Environmental contamination reports (particularly important for industrial and petrol station sites)

**Physical due diligence.** Engage qualified professionals to inspect:
- Structural integrity (commercial building inspector, not a residential one)
- Electrical, plumbing, and HVAC systems
- Fire safety compliance (essential services maintenance records)
- Asbestos register (mandatory for buildings constructed before 1990)
- Environmental site assessment (Phase 1 minimum for industrial/fuel sites)

The environmental component is especially important and often overlooked. A contaminated site can cost $500,000+ to remediate. This isn't theoretical — I've seen buyers walk into contamination liabilities because they skipped a $5,000 environmental assessment.

Our team handles all three pillars of due diligence for our clients. We have established relationships with commercial solicitors, building inspectors, and environmental assessors across Melbourne. The investment in proper due diligence is typically $10,000-$20,000 — a fraction of the potential downside risk.

## Step 5: Sign and exchange — then settlement

Once due diligence is satisfactory, the purchase follows a structured path.

**Contract signing.** Your solicitor reviews the contract of sale, negotiates any special conditions (finance, due diligence period, tenant confirmation), and you sign. A deposit — typically 10% — is paid into a trust account held by the vendor's solicitor or a nominated stakeholder.

**Settlement period.** Commercial settlements typically run 60-90 days, longer than residential. During this period, your lender completes their valuation and issues formal finance approval. Your solicitor conducts final title searches, confirms no new encumbrances have been registered, and prepares settlement documentation.

**Settlement day.** Your solicitor (or their settlement agent) attends settlement electronically. The balance of the purchase price is transferred. Stamp duty is payable — commercial rates vary by state but in Victoria run approximately 5.5% on the dutiable value. Title transfers to your holding entity.

**Post-settlement.** Immediately after settlement:
- Notify the tenant that ownership has changed and provide new payment details
- Transfer building insurance into your entity's name
- Engage a property manager (or manage yourself if you have the time and expertise)
- Set up accounting systems to track rental income, outgoings, and GST obligations

GST deserves special mention. Most commercial property transactions are GST-applicable. If you buy a tenanted property as a "going concern" (with an existing lease in place), the sale is GST-free. If you buy vacant commercial property, you pay GST on the purchase and can claim it back through your BAS if you're registered. Get this wrong and the cost is 10% of the purchase price. Your accountant and solicitor need to be across this before exchange.

## Step 6: Ongoing management and value creation

Buying the property is step one. Managing it for maximum return is the ongoing game.

**Regular rent reviews.** Most commercial leases include annual CPI increases (typically 3-4%) or fixed percentage increases. Ensure your lease has market rent reviews at specified intervals — usually every 3-5 years. These are your mechanism for forcing appreciation. A property generating $100,000 net rent valued at 5% cap rate is worth $2 million. Increase the rent to $130,000 and the property is worth $2.6 million. You've created $600,000 in value without spending a cent on the building.

**Lease expiry management.** Start lease renewal conversations 12-18 months before expiry. You want to avoid vacancy — every month empty costs you one month's rent plus the holding costs. Early engagement gives you negotiating time.

**Maintenance and capital improvements.** Well-maintained commercial properties attract and retain quality tenants. Budget 5-10% of gross rent annually for maintenance. Capital improvements (new HVAC, facade upgrades, energy efficiency measures) can be partially recovered through rent increases or lease incentive reductions.

**Tenant relationships.** This sounds soft, but it's commercially critical. A good tenant on a long lease is the single most valuable asset in commercial property. Respond to maintenance requests promptly. Communicate clearly about any building works. Be firm on lease obligations but reasonable on genuine hardship. Tenant retention is vastly cheaper than tenant replacement.

Commercial property is a long-term investment. The most successful investors I've worked with hold for 10-20 years, gradually increasing rents and improving the asset. The compounding effect of annual rent increases, combined with capital appreciation from a growing economy, builds substantial wealth.

If you're considering your first commercial property purchase or looking to diversify from residential into commercial, the process is more complex but the reward-to-risk ratio can be superior — particularly in the current environment where residential yields are compressed and commercial yields remain attractive.

Reach out if you want to discuss your specific situation. We work across both residential and commercial acquisitions and can help you structure a portfolio that balances both asset classes.

## References

1. [Australian Taxation Office, 'GST and Commercial Property', 2020-21.](https://www.ato.gov.au/business/gst/in-detail/your-industry/property/gst-and-commercial-property/)
2. [State Revenue Office Victoria, 'Land Transfer Duty (Stamp Duty) — Commercial', 2020.](https://www.sro.vic.gov.au/land-transfer-duty)
3. [CBRE, 'Australian Commercial Property Market Outlook', H2 2020.](https://www.cbre.com.au/research)
4. [JLL, 'Commercial Real Estate Statistics — Melbourne', Q4 2020.](https://www.jll.com.au/en/trends-and-insights/research)
5. [Property Council of Australia, 'Office Market Report — Melbourne', Q3 2020.](https://www.propertycouncil.com.au/)
6. [APRA, 'Commercial Property Lending Standards', 2020.](https://www.apra.gov.au/)
7. [Safe Work Australia, 'Asbestos in Commercial Buildings — Management Guide', 2020.](https://www.safeworkaustralia.gov.au/asbestos)
8. [Victorian Government, 'Planning Zones — Commercial and Industrial', 2020.](https://www.planning.vic.gov.au/policy-and-strategy/planning-for-melbourne)
9. [PremiumRea internal commercial transaction advisory records, 2019-2020.](#)

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Source: https://premiumrea.com.au/blog/commercial-property-buying-process-australia-guide
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent