Why are private investors in a commercial property buying frenzy?

It has been a very interesting 12-month period for the Victorian property sector, which continues to ebb and flow with interest rate hikes, construction headwinds and supply chain issues, as well as other lingering effects of the global pandemic.

However, over the past year, our experienced sales team has recorded over $170 million in commercial transactions of tenanted investments to the private market alone, demonstrating that they haven’t bought-into the negative sentiment doing the rounds in other real estate segments.

Since July we’ve managed over $15 million in tenanted commercial deals across Victoria, including the sale of the United Petroleum service station on Greens Road in Dandenong South, as well as a trio of transactions at the Hastings Trade Centre for the Autopro, PETstock and AWM Electrical landholdings.

Many parties in the private investment sector have showcased an increasingly aggressive attitude to new acquisitions, and remain out in force looking for new commercial investment opportunities that will deliver market-leading yields – even in the wake of the latest interest rate hikes.

One of the key factors that has kept this investment demographic in the market amid trying conditions comes down to borrowing and spending power.

Borrowing headwinds off the back of the RBA’s rate rises are impacting institutional players, so the vast majority of sales activity we have managed has been from high-net-worth individuals and other private investment groups with cash resources built over multiple years.

In many cases, these cash reserves have been significantly bolstered by the growth of existing property investment portfolios over the past 24 months, meaning their borrowing requirements are significantly less than others.

From our recent experience, well-established private investors are borrowing roughly 50 per cent of the value of the property and financing the outstanding costs themselves.

The most appetite for new commercial investment opportunities has focused on properties with long-term leasing commitments secured with trusted brands in the eyes of Australian consumers.

Suburban areas were the highest performing sales regions over the past year, while the top verticals for commercial investments ranged from:

• Service stations – $20 million in tenanted transactions
• Hospitality venues – $77 million in tenanted transactions
• Industrial warehouses – $67 million in tenanted transactions
• Childcare centres – $16 million in tenanted transactions

More broadly, our full-service commercial real estate agency specialises in vacant asset sales and leasing, as well as provides end-to-end property management services. Both of these verticals have seen their own unique trends emerge in recent months, and I look forward to sharing my insights around these in future articles.

If you would like to learn more about the private investor activity we have observed in the market, or you are interested in investing in or selling a commercial property asset, please reach out to me at paul.jones@jonesre.com.au.