Investors dominating the commercial market
Investors rather than business owners are dominating the commercial markets under $3 million in Brisbane’s southern suburbs according to leading agent, Joseph Grasso, Director, Raine & Horne Commercial Brisbane Southside.
“Any investment property valued around the $3 million mark, whether it’s an industrial, retail and to a lesser extent an office asset with a quality long-term lease of four to five years is being well received by the marketplace,” said Mr Grasso.
Raine & Horne Commercial Brisbane Southside recently secured the sale of a tilt slab building at 32 Perrin Place, Salisbury for $3.16 million, which is currently tenanted by Actrol Parts. Actrol is Australia’s largest wholesaler of parts to the refrigeration, air conditioning and allied industries and was recently acquired by ASX listed Reece Australia Limited (REH)[i].
“We sold it at a nett yield of 7.5% to a local private investor, whereas the same property would have sold for a nett yield of around 8.25% a year ago. This is yield compression we are experiencing as a consequence of falling interest rates,” Mr Grasso.
“The 1787 sqm building was constructed in 1999 on a flood free location, which comes with full security fencing, good truck access and is fully partitioned air-conditioned offices and meetings rooms.
“There were two committed buyers and the property sold in 48 hours.”
According to Mr Grasso, investors are paying more for commercial assets in 2015 because low interest rates are helping to make them more viable.
“12 months ago around 70% of our transactions were leases while it’s now more like half of all commercial transactions are sales,” said Mr Grasso, who confirmed that investors are proving the dominate buying group.
“The stock market seems to have topped out and with low interest rates meaning you can only can get about 2.5%- 2,8% for a cash holding, investors are recognising that a 7.5% yield after all outgoings are paid is exceptional.
“If you’re paying 4.0% – 4.5% for your finance and getting 7.5% nett, you’re 3% plus in front even without the benefits of depreciation.”
Businesses are still reluctant to buy a commercial property until they see more confidence vis-à-vis the economy. “As a consequence they prefer to lease even those there’s never been a better time to buy a commercial asset thanks to current interest rates,” said Mr Grasso.