Commercial Property Market Update July2021

Hi Everyone

I collect commercial property data each month on many markets across Australia and I thought some of you might be interested in my research.

The data has identified Coffs Harbour in NSW as one of the tightest industrial markets in Australia with sub 5% vacancy and extremely low stock on hand.

The Industrial sector has seen the highest amount of properties transacted at 14 properties since the start of the year. It is also the sector with the lowest amount of new leases written at just 26 due to the unavailability of rentable space.

The Retail sector comes in second place in new leases written with 29 since the start of the year but only 6 property transactions have been recorded.

While the Office sector takes the cake with 56 new leases written and 11 properties transacted since January 2021.

Let me know if you want me to share more of my findings in this forum.

 

You're putting some great content out there Andrew and this would be yet another feather in your cap. Definitely interested in hearing more from you and many thanks for what there is to date!

 

Cheers @kmrr

 

Yes, please do. I enjoy your podcast and its format. Have ordered and received a couple of books off your site too. Look forward to more of your shares.

 

I’m really glad you are enjoying it. It’s a lot of fun putting it together and sharing information.

 

Are you noticing any particular features or commonalities to the types of industrial properties which are in high demand?

 

just discovered you podcasts Andrew. Stoked to see your website too

 

Hi Andrew, what's your podcast named? I'm very keen also to increase my understand in trends.

 

Hi Norwoodman

It’s hard to make a judgment like that because the data I am collecting is just numbers. I use the numbers to gain a true understanding of the supply and demand in a local market. Then I confirm my findings by speaking to agents on the ground.

 

Cheers Property Guts. Im happy to be here and contribute to this amazing community.

 

Hi Alexander

The podcast is called Commercial Property Show Australia.

 

Following now. We are really blessed to have access to many quality information these days.

 

Interesting site, I'll check out your podcast.
Reading your "top10" post there's a category that everone seems to miss that is now more important thn ever. The "bulky goods" retail in the industrial areas. Even for small retailers.
Covid has killed old style specialist small retail. These businesses need to get their online thing happening and retail strip is just not suitable.

What's needed these days is parking out the front, and side or back entrance for incoming goods.
It was coming with the online trend, covid is just speeding up this process. And the rents are cheaper than main streets.

 

I can’t help but see this as a double edged sword. A large part of the opportunity for outsized returns to investors in sub institutional size commercial property has been due to the opacity of information, thus difficulty of access.

It now seems down in the $0.5m - $3-4m range that competition is becoming increasingly hot on the back of all of these podcasts and buyers agents targeting the “retail” investor entering the commercial property space. This is a hunch I’ve got that I am going to start testing with agents.

This was not the case 5 years ago. The desire to “move to commercial” that you see posted here by every second poster seems to support this. Like the rush to ESG, this will create short term price momentum but lower long term returns imho. My assumption is that there is a lot of competition for “quality” tenanted buy-hold smaller properties from new entrants, the buyers agents all sourcing the same stock. The opportunities now may be in redevelopment of smaller assets as less completion.

 

I agree that it certainty does increase competition as everyone jumps on the bandwagon on what's the favour of the month. But in saying that it also makes some people less inclined to do anything because they struck in the 'analysis paralysis' stage and if they do something they are less inclined to do it for the long haul as they latch onto something else. Rome wasn't build in a day and people seem to forget that.

I think some of the investors are stuck in that they have reached their serviceability limit for residential borrowing and they still wish to wish to continually invest into something else. There are some fantastic benefits of a commercial property.

 

Valid point. Problem also is that anything half decent usually goes to auction and then you have uninformed sheep bidding these up as if they were buying a PPOR. Hence yields and cap ratees tighten further. Auctions also demand significant due diligence to be done before a contract is signed. Prices being paid can certainly be stupid. I have come across some people who consider negatively gearing a commercial asset is a valid strategy

I have a feeling, that once interest rates start move north then cap rates will follow suit and prices come off a little. Also, those burnt by a FOMO purchase might be off-loading. I'm watching and following right now. I'll be a buyer only for whatever suits my criteria. If I have to wait a couple of years, so be it. That's when I'll be offloading aa fair bit of the resi portfolio anyway as it continues to run fairly hard.

 

point taken but who's to say rents won't just increase in line with rates going up? cap rates are pretty crazy right now so they will probably come off a bit but i'd be surprised if the additional interest expense wasn't just passed on.

 

To your first point, recent sale Sydney south freestanding industrial. 950m2 land, 570m2. Old shed, corner position. Saw it as a redevelopment site. Guide around 2.5. Sold under the hammer for 3.36 to an old bloke who paid cash, apparently cash was at bank earning nothing…he was happy to accept cap rate of 3.8% and just sit on the property…Geezus. Would have been far better off in a few well run UPTs.

To your second point, agree wholeheartedly.

 

Geez. At that cap and price, rent is circa 128K with a square metre rate of $224. That's high for pure industrial unless there is some showroom to it or a large-ish office component or land is unique. Based on your account wouldn't surprise me if it was a vendor lease back also. Bring on rent review time

You should contact the tenant to inform you if it is on market again in several years time

 

Might sound like a noob question but are there BAs for CIPs? Do we have any on the forum?