How to calculate commercial property yield
Yield is the income a property produces as a percentage of its price. There are two versions, and the gap between them is where deals go wrong.
Gross yield = annual rent ÷ price × 100
Net yield = net operating income ÷ price × 100
Net operating income (NOI) is the rent you actually expect to collect after an allowance for vacancy, minus the outgoings you pay as landlord. Loan repayments are not deducted — NOI measures the property, not how it's financed.
Worked example
A $2,000,000 commercial building leased at $150,000 a year shows a gross yield of 7.50%. Allow 5% for vacancy and $12,000 of landlord outgoings, and the net operating income is $130,500 — a net yield of 6.53%.
Estimating value from yield (cap rate)
Turn the formula around and yield becomes a valuation tool. If similar properties are selling on a known yield, the value of yours is roughly:
Value = net operating income ÷ market yield
In the example, at a market yield of 7.00% the building is worth about $1,864,286. Small changes in yield move the value a long way: at 6.50% it's $2,007,692, and at 7.50% it's $1,740,000. That's why the calculator shows a range, not a single number.
This is the same income approach valuers use for commercial property, but they also weigh lease terms, tenant quality, building condition and comparable sales. A lender will rely on a registered valuation, not a calculator.
What is a good commercial property yield in NZ?
There's no single number. Yields differ between office, retail, industrial and mixed-use property, between city centres and regional towns, and between a long lease to a national tenant and a short lease to a start-up. They also move with interest rates — when the official cash rate rises, buyers usually want higher yields.
Two practical checks matter more than a benchmark:
- Compare like with like. Ask a valuer or agent what similar properties nearby have sold on.
- Compare against the debt. If the net yield is below the interest rate you'll pay, every dollar borrowed costs more than it earns.
Net lease vs gross lease
On a net lease — the most common structure for NZ commercial property — the tenant pays most of the outgoings, such as rates and insurance, on top of the rent. Your outgoings figure may be close to zero. On a gross lease, the landlord pays them out of the rent, so they need to come off before you work out the net yield. Read the lease before you trust an advertised yield.
How yield affects what you can borrow
Lenders don't just check the LVR — they test whether the net income covers the loan repayments with a buffer. A property on a low yield supports a smaller loan than its value suggests, so you need a bigger deposit. Put your NOI into the commercial property borrowing calculator to see which limit applies, then check the repayments in the commercial loan calculator.
If the numbers work and you need funding, our commercial property finance page sets out loan sizes, LVRs and terms — or see how equity release can fund the next purchase.