Private investors pounce on tenanted commercial assets amid borrowing headwinds

Private investor demand for long-term tenanted commercial assets in Victoria is not slowing following the Reserve Bank of Australia’s interest rate hikes, or in the wake of the global pandemic, according to Melbourne-based agency Jones Real Estate.

Over $170 million in tenanted investment transactions to local, national and internationally-based private investors were recorded by the business over the past 12 months, demonstrating significant appetite for leased assets including service stations, childcare centres, industrial warehouses, hospitality venues and development sites with committed retail tenants and fixed annual yields.

Commercial properties with tenants trusted by Australian consumers have driven the most sales activity, says Jones Real Estate – a claim supported by the sales of two prime-positioned retail spaces occupied by PetStock and AutoPro at the Hastings Trade Centre, which sold for $3.3 million and $2.9 million, respectively. 

Both sales were facilitated in July via standalone private negotiations, achieving a 17 per cent higher transaction result than other sales during August at the same retail hub.

Talking to the recent sales performance across the 12-month period, Managing Director of Jones Real Estate, Paul Jones, said: “The RBA’s rate hikes have softened sentiment among institutional investors in different real estate markets, however well-established private investor groups remain out in force and eager to capitalise on diversified commercial assets while the cost of borrowing cash climbs,”

“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.  

“On average, the well-established investors we have represented are generally borrowing 50 per cent of a property’s value and financing the remaining costs themselves. There are also cases where purchasers choose not to finance their investment. 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.”

Metropolitan and inner-suburban areas were the highest performers according to Jones Real Estate, with $77 million in hospitality venues sales and $67 in warehousing deals facilitated 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.

During this period for Jones Real Estate, the agency also sold over $30 million in vacant possession properties across planned and completed Victorian development sites. For more information about Jones Real Estate, or its portfolio of sold and on-the-market properties, please visit: www.jonesre.com.au.