Commercial Investment Demand Rises
Demand for commercial investment assets with attractive long term tenants in NSW has enjoyed robust growth with yields under pressure due to a lack of supply, according to research by Ray White Commercial.
Ray White Commercial Head of Research, Vanessa Rader, said over the past five years a new asset class has emerged across the commercial property market from investors in the low interest rate environment looking to secure long term “set and forget” investments.
“These assets include service stations, fast food outlets, stand-alone liquor or supermarkets, banks or other property which provide an attractive long term tenant with fixed rental increases,” Vanessa Rader said.
Vanessa Rader said in 2015 commercial investment sales in NSW totalled $426.383 million across 223 transactions which was 4.94 per cent up on the previous year and the strongest number of sales for five years.
“Demand for these types of assets with strong lease tails is not limited by geographical boundaries with both metropolitan Sydney and regional locations yielding strong results,” she said.
“These investments are more income stream driven and they appeal to a variety of private investors including high net worth individuals, mum and dad investors banding together to form syndicates as well as private superannuation funds.”
Ray White Commercial NSW Director Michael Ajaka said investment yields for these types of assets have shown considerable range and in more recent times strong levels of consolidation.
“With financing at record rates and returns for other investment classes such as equities, shares and the residential market yielding lower returns, greater competition has emerged for these assets driving yields down to new levels.,” Michael Ajaka said.
“The average yield result for the metropolitan Sydney area up until May, 2016, was 5.43 per cent. This compares with an average result of 5.82 per cent in 2015, 6.14 per cent in 2014 and 7.02 per cent in 2013.”
Michael Ajaka said regional areas had fallen from highs of 8.0 per cent in 2012 to an average of 6.75 per cent during 2016, with the $3.4million sale of a Hungry Jacks at Griffith in April this year achieving a yield of just 5.03 per cent.
“Demand for commercial investment property is unlikely to dampen over the short term and increase in competition among buyers is likely to result in further yield compression throughout the remainder of 2016,” he said.