INVESTORS LOOK TO RETAIL PROPERTY FOR CASH RETURNS

Written on the 8 September 2016 by James Perkins

INVESTORS LOOK TO RETAIL PROPERTY FOR CASH RETURNS

DEMAND for retail commercial property is surging Australia wide as investors seek secure returns on investments in a time of record low interest rates.

Ray White Commercial Gold Coast director Greg Bell says commercial property is becoming an attractive option for investors wanting capital growth potential and strong rental yields.

"There is a real demand for commercial properties on the Gold Coast as they shape up as low-risk investments with decent returns," he says.

"It stems from the fact that interest rates are so low and the return from bank deposits is not sufficient for many investors."

The agency had a bumper FY16, with at least a dozen of its 446 transactions investments in the retail sector that cracked the multi-million-dollar mark.

These included including a prominent Nobby Beach shopping precinct for $9 million, an Oxenford retail and office complex for $9.6 million at 7.5 per cent yield, and a Surfers Paradise retail building for $8 million.

Data from the Business News Australia website provides more evidence of a shift in the commercial property market.

Our latest in-market readership figures, which show readers who are researching and actively considering buying, have showed a 54 per cent increase in readers looking at commercial property in the three months to August 31 compared to the previous quarter.

This clamouring for commercial retail assets is a trend being seen nationwide. Earlier this month a Victorian family bought a Woolworths and Dan Murphy's in Tamworth for $37.95 million at auction at a yield of 5.4 per cent.

"The sale is on a par with what a lot of Coles and Woolworths are selling for across Australia on yields of between 5 and 6 per cent," selling agent David Lyons, from Cushman and Wakefield told the Australian Financial Review.

Today it was announced that Nagambie Central Shopping Centre in Victoria, anchored by a 15-year lease to the SUPA IGA Group, was sold be CBRE to a foreign investor for $7.8 million at a yield of 6.1 per cent.

Recent similar transactions provided slightly higher yields, with IGA Strathfieldsaye achieving 6.86 per cent and IGA Bittern recording 7.4 per cent.

The property marked the third retail investment property in Victoria to sell to an offshore buyer in the past three weeks, following the sale of Bunnings Yarrawonga (5% yield) and Beaurepaires Kew (3.9% yield). 

CBRE's Mark Wizel says that over the past 18 months offshore interest in Victoria's retail investment market had spiked significantly, with an average of 36% Asian enquiries for each campaign.

"Not only are offshore investors enquiring on properties in regional locations, but they now have the confidence to be buying in these areas, he says."

Recent CBRE research highlighted that foreign buyers were responsible for record retail sales volumes in 2015 - 20% higher than in 2014. Foreign buyers contributed to 27% of the total retail transactions, which have historically averaged 12% over the past 10 years.

In Brisbane, a private investor sold a Foodwords-anchored convenience store on Emerald Drive (pictured) for $3.4 million, at a passing yield of 7 per cent. It was a fantastic result for the vendor, who saw a 21 per cent increase in the property's value in less than three years.

CBRE's Millan Narsay conducted the transaction. He says, "The vendor decided to take advantage of the substantial yield compression in the current market. This compression in yield is not just isolated to Foodworks Regents Park, we continue to see astute vendors capitalising on the favourable conditions by selling now at a price premium."

Back on the Gold Coast, Ross Hawkins, Principal and owner of Gold Coast Commercial Real Estate, says he has seen a pickup in inquiries for sales, and prices have shown some increase.

"There are certainly more buyers out there and that is no doubt influenced by the low interest rates," he says.

"There is a shortage of listings, with some people holding on to see if the buyer demand will force up prices to a level where they want to sell."

While Hawkins won't describe the market as strong, he says it is on the move.

"This is just the start of a rising market."

Hawkins recently sold three strata shops in Lawrence Drive at an 8.5 per cent yield and he sees yields for similar properties coming down to 8 per cent in the future.

Yields for some properties have dropped below 6 per cent on the Gold Coast, which Hawkins says could reflect a strong tenant on a long-term lease.

Anna Tooma, Principal and Licensee of LJ Hooker Surfers Paradise agrees that retail properties in particular have seen strong demand as investors chase a secure return on investment.

"What we have seen is very strong demand for retail properties, particularly those anchored by national tenants," says Tooma.

"The yield is a reflection of the quality of tenants in the tenancy mix."

 


Author: James Perkins Connect via: Twitter LinkedIn

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