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Sale transactions of commercial properties to private investors remained robust in the last 12 months — indicating that the Reserve Bank’s recent rate hikes are not leaving a bad taste in this particular investor group’s mouths, according to an agency.
Jones Real Estate revealed that it has recorded a total of $170 million in tenanted investment transactions to local, national and internationally based private investors over the year, underscoring the strong demand for long-term leased assets.
But it’s not just tenanted properties that are being snapped up by private investors. During this period, the Melbourne-based agency reported it has also sold over $30 million in vacant possession properties across planned and completed Victorian development sites.
A deeper look into the transactions showed metropolitan and suburban areas were the highest performers, with $77 million in hospitality venues sales and $67 million in warehousing deals facilitated by the agency over the past year.
Childcare facility investments reached $16 million, while a further $12 million in transactions for tenanted service stations were also handled by the business.
The agency revealed that tenanted retail and commercial properties under $5 million with committed leases are in high demand and spurring strong sales activity since the central bank raised interest rates, which currently stands at 2.35 per cent following a successive five-month rate hike cycle by the RBA.
And sales to private investors are not showing any signs of slowing down. The agency reported it has facilitated three retail space deals at the Hastings Trade Centre for $2.05 million, $2.9 million and $3.3 million in just the last eight weeks.
Jones Real Estate senior executive Luke Peric explained that while the central bank’s latest rate hike cycle has “softened” buying sentiment among institutional investors, private investors are not taking the same approach when it comes to commercial investing.
“[Well-established] private investor groups remain out in force and eager to capitalise on diversified commercial assets while the cost of borrowing cash climbs,” he commented.
On the contrary, he said that current market conditions created a perfect storm that spurred private investor activity.
“The latest interest rate rise, coupled with other potential increases before the year’s end, adds to the favourable market conditions for the private sector, as it continues to put upward pressure on borrowing requirements, causing some players to withdraw from the market and in-turn reduces competition for listings,” he stated.
Providing insights based on the Melbourne-based agency’s previous transactions, Mr Peric revealed that well-established private investors are generally borrowing 50 per cent of a property’s value and financing the remaining costs themselves. He also cited instances where buyers choose not to finance their investments.
“On the other side of the coin, less-established parties and some REITs are required to borrow from around 60 per cent of the property’s value, which diminishes investment returns considerably in this market climate,” Mr Peric stated.
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