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Buying A Commercial Property Now? 3 Things To Consider

By Michele Dale

The last 18 months have seen outstanding investment into Australian commercial property across all asset classes. A combination of seasoned investors, SMSFs and first-time buyers converged on assets that offered better returns than the low bond rates and more certainty than the share market. 

Nowhere is this flurry of activity more evident than on the Sunshine Coast, where high sales volumes driven by a growing buyer pool have resulted in strong compression and, in some cases, record high yields.  

A growing number of buyers have made their first foray into commercial assets, taking advantage of low interest rates, availability of finance, and the quest to diversify during the economic uncertainty of COVID-19.

Here are three key fundamentals for buying commercial assets during uncertain times from the team at Ray White Commercial Noosa & Sunshine Coast North.

  1. LOCATION, LOCATION, LOCATION

This is the old adage we often hear regarding residential property but it still applies to the commercial market. Over the last few years, we have seen a big push to regional markets with buyers chasing yields. With high levels of population growth, infrastructure investment, and interstate migration, demand for high-quality assets on the Sunshine Coast continues to be strong.

Depending on the asset, there may be different locational considerations within the region. For example, industrial investments offering access to major road networks like the Bruce Highway tend to be more appealing and therefore achieve higher yields. In retail, you might want to consider foot or vehicle traffic, local demographics and parking. In the office market, modern A-Grade space, particularly with a quality fitout, should continue to return high yields, especially around growing areas such as Maroochydore, Noosaville and Birtinya.

  1. LEASING DETAILS

With tenanted investments showing the most significant demand by private buyers, understanding the terms and conditions of the lease is imperative, including make good and rental increases. 

For multi-tenanted assets, what is your weighted average lease expiry (WALE), and how much does it cost to lease and manage the asset with an expert agent such as Ray White Commercial Noosa & Sunshine Coast North? Ask what you can expect regarding legal fees, outgoings and capital expenditure.

  1. EXIT STRATEGY

A fixed income stream sounds appealing but what happens at the end of a rental term? 

For specialised uses, tenant loss is a considerable expense. Consider what you can do now to identify opportunities for your property if and when your tenant leaves. Is it time for a refurbishment? Is there an alternative use permitted under the zoning? Can it be developed? Start the investigation and discussions early so you have a robust plan to ensure your commercial property continues to yield good returns into the future.

VALUE-ADD ASSETS AND TENANTED INVESTMENTS

The next opportunity may come from investors still willing to move up the risk curve. Assets that are underlet or have vacancies could be an opportunity for buyers looking to capitalise on the rising holding costs for landlords. “Value-add” assets, or those with alternative development opportunities, are likely to draw the attention of some investors looking to profit from changing market conditions.

In summary, tenanted investments remain in strong demand and the long-term, secure income stream is attractive to many. 

Ray White Commercial Noosa & Sunshine Coast North has been a market leader in Noosa and Sunshine Coast commercial property for over 20 years. Our astute campaign strategies are designed to generate interest for your property, maximise competition and achieve a premium result.

Please get in touch for a chat about your commercial property or the market in general on+617 5474 7600 or email us at noosacommercial.qld@raywhite.com

Sourced from original content written by Vanessa Rader, Head of Research at Ray White Commercial.

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