When it comes to property investment, everyone wants to know where the better returns lie. Most people assume residential is the safer bet — but when it comes to depreciation, commercial property might just surprise you. While there are clear differences between the two, they also share some key similarities — like how newer buildings and high-quality finishes tend to bring in the biggest claims. In this post, we’ll crunch the numbers, unpack some real-life case studies, and reveal why investors are giving commercial property a second look. Whether you’re an owner-occupier or a seasoned investor, there are tax savings here you don’t want to miss.
Let’s now crunch some numbers
Note, also, that you will get more depreciation on a commercial suite than a factory unit or warehouse depreciation schedule. This is because a factory unit does not have as much plant and equipment. It is nearly all made up of concrete and steel.
In short, if you are the tenant in a commercial property, and think now might be a good time to become the owner-occupier, don’t forget to claim those tax depreciation allowances available to you as a landlord.
Or if you’re an investor, don’t overlook the benefits of commercial property depreciation, as it can still provide strong advantages with potentially higher yields.
Let me share with you two projects we’ve worked on across various sectors, including commercial, hospitality and retail property depreciation strategies to illustrate the benefits for different investors.
CASE STUDY: Lend Lease
When I started way back when, never in my wildest dreams did I think I would be preparing reports for a multi-national company like Lend Lease. But I’m proud to say, over the years we have prepared many reports for them. From multi-million dollar shopping centres in Victoria and New South Wales, to factories in Queensland, and retail warehouses in New Zealand. Lend Lease likes that we go the extra mile.
The key to preparing office property depreciation reports lies in the research.
For example, Lend Lease purchased a 20,000 square metre shopping centre in Port Macquarie. The site had already undergone multiple upgrades over various years. One approach would have been to visit the site and make an estimation based upon any drawings we might have been provided with, inspect the site and discuss any changes that may have occurred with the building manager. But I always find that you need more than that.
With large projects such as a commercial shopping centre, you should always contact the council and sift through the endless archival documentation they have. This can sometimes take a whole day. There can literally be hundreds of files to sift through, as each time a new tenant moves in and out,the council generally has records of that move. Every time the previous building owner made changes to the building, the council will have recorded the event.
The advantage of going to the council is that you ascertain when and what type of upgrades were completed. Sometimes the information even includes the estimated cost of the upgrades and plans of the work that occurred. This builds up a great case to go back to the client and say, “Look at all this extra stuff we discovered you can claim, and here’s how we can prove it.” Lend Lease liked that.
CASE STUDY: Ford Factory
When I first started preparing depreciation reports, I initially focused on residential investment property. Not because the reports are that different, we just hadn’t been engaged to prepare reports for commercial property. So when one of my mentors, the distinguished quantity surveyor Jim Ford, offered me the opportunity to work with him on the depreciation report of a Ford factory in Queensland, I jumped at the chance.
Off I flew to Jim’s office in Brisbane and started work on this project. I had never been to another quantity surveyor’s office before, and I have to admit I was nervous.
I sank my teeth in. The more I researched the part of the Tax Act relating to the manufacturing industry, the more areas I found where we could save our clients money.
Remember, this was early on in the game. There were very few quantity surveyors specialising in this area. I discovered a little-known part of the Tax Act that allowed this type of factory to claim building allowance at a rate of 4% per annum in comparison to the standard 2.5% per annum. You may think 1.5% doesn’t sound like a lot, but on a $10 million construction cost—that’s an extra $150,000 the client could write off every year.
Both Fords were very pleased.
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