The year that (almost) was continues to break records for numbers of first-time commercial investors entering the market. At the same time, seasoned investors encouraged by favourable conditions have been upping the risk-factor in new purchases. So with less than two months before we kick off 2022 Commercial Property Guide canvasses a range of expert’s opinions on the state of play across asset classes and where best to invest now and in the future.
Industrial assets look to continue their status as firm favourites. Warehousing, storage and logistics facilities have been among investors’ most coveted purchases since covid forced more businesses online and their needs for storing and distributing stock. But with Australia’s industrial property vacancy rate now at an historic 2.24% low (and Sydney’s industrial and logistics market the tightest in the country) director of Rethink Investing Scott O’Neill said investors need to look beyond traditional premium locations within Sydney and Melbourne.
“In 2021 we have seen demand for industrial space reach its highest ever level,” Mr O’Neill said. “Covid forced more businesses online and encouraged customers to change their shopping habits. For these reasons I will continue to target industrial assets for my clients and myself – and in terms of areas, I like Brisbane, Perth, Adelaide, Canberra and major regional areas all over the country for their strong yields. For me the yields in Melbourne and Sydney are just too tight now.”
In retail, Mr O’Neill recommends “well-placed high-quality assets” – again in the same cities and regions as above.
Retail surveys by Ray White Commercial have found high street shopping strips are rebounding strongly – and nowhere more so than in Perth. Vanessa Rader Ray White Head of Research said the trend was across the city’s five popular retail strips: Bay View Terrace in Claremont, Napoleon Street in Cottesloe (zero vacancy); Rokeby Road in Subiaco, Oxford Street in Leederville, and Beaufort Street in Mt Lawley. In the past 12 months Cottlesoe’s median house price grew 29.21 per cent to $1.86 million and house sales soared 63.83 per cent.
“While some locations such as Claremont and Cottesloe continue to feature high levels of clothing and soft goods - a sector in decline for most retail destinations - the potential to improve in the food retailing segment for these and other strips continues to be high,” Ms Rader said.
The pandemic’s effect on office sales has been counter intuitive within CBD markets said Ray White Commercial Sydney principal Anthony Harris, with low interest rates allowing strata prices to stay high despite covid’s economic fallout.
“There have been a number of strata buildings now reaching the 75% threshold to allow re-development such as 23 Hunter Street and 58 Pitt Street - thus reducing the supply of strata offices and pushing up prices,” Mr Harris said.
“We expect strata prices to continue to rise as many owners and tenants that are compensated by Sydney Metro will place these compensation monies into strata office purchases.”
Close to home
Suburban office assets are now highly sought after by investors with unprecedented demand from first-time commercial investors. “Businesses have been reassessing their office accommodation options and providing staff with more local, satellite office locations,” Ms Rader said.
“The ability to secure assets across all price points has also been a major drawcard for private buyers with high volumes of sub $1 million properties changing hands. “
In the first nine months of 2021 Ray White Commercial oversaw $2.45 billion in suburban office transactions including the sale of the Woolworths headquarters in Bella Vista for around $463 million - the largest ever suburban office transaction.
Interest in suburban office assets was also driven by the shortage of commercial stock generally in the sub-$5 million range said Ray White Commercial Western Sydney director Victor Sheu. Inquiries had accelerated in recent months as buyers shifted their searches from retail and warehouse investments he said. “People are very receptive at the moment to assets located in centralised employment hubs like Parramatta, Penrith, Bankstown and Liverpool,” Mr Sheu said.
Demand for essential services (such as groceries, medical, childcare and fast food) remains exceptionally strong across both cities and rural areas said Darren Beehag, national director of leading boutique agency Burgess Rawson which specialises in this area. “It doesn’t matter whether a property was in Narrabri or Dee Why,” Mr Beehag said. “These asset classes are in such high demand that as long as the fundamentals stack up these will always be good investments regardless of location in metropolitan or regional areas.”
Robert Klaric, founder of The Property Experts, lists Newcastle, Wollongong, Mudgee, Armidale and Orange among most popular regional areas targeted by pandemic-driven investors. The veteran real estate agent-turned-property analyst and advisor said while the temptation of higher yields found in regional areas compared to metro was hard to resist, he always advises buying as close to a regional town centre as possible. “Aim for the main shopping area or the commercial heart if you’re going to invest in commercial property in a rural town,” Mr Klaric said. “The downside of regional areas is tenants aren’t as easy to find as in cities should a vacancy occur so it’s best of buy in the heart of a commercial strip where tenancies will be sought after.”
Back to basics
The flight from cities to regional areas since covid and low interest rates had helped triggered a slew of commercial property purchases in the past year simply through fear of missing out Ms Rader said. More recently however investors had put their “sensible hats back on” and made property fundamentals– the quality of an asset’s location, tenant and lease – their top priority once more. “You cannot go past a metropolitan location,” Ms Rader added. “Sydney and Melbourne will always be the premiere locations and Brisbane has also matured due to interstate migration.”
In Brisbane, the most promise was being seen in the Bayside area east of the city centre. “The attractive lifestyle benefits of the area have aided population growth and boosted business demand,” Ms Rader said.
In the first three quarters of 2021 almost $120 million in commercial sales occurred in Bayside across 100 transactions –outstripping full year results achieved from 2016 to 2019 and fast approaching 2020’s turnover of $138.16 million. “Industrial remains the most sought-after asset in this area, Ms Rader said. “Owner-occupiers and smaller investors are actively pursuing these assets at the sub- $1.5 million price point.”