We are talking with agents every day across all asset classes in both NSW and QLD and there is a common theme at the moment;
‘There is a very limited supply of good investment properties available for sale, and a strong demand from buyers’
This current situation is a result of;
- Investors are wanting to move their capital away from the volatility of the current equities market and into commercial real estate which is providing a higher and more consistent yield.
- Investors are looking to take advantage of the low interest environment.
- Agents are finding it difficult to list good investment properties due to vendors being very reluctant to sell, in most cases the vendors reasoning is;
o ‘what else will I purchase if I sell’, and
o ‘why would I sell a good long term investment when I am achieving a good yield. I would only have to buy a new property at lower yield or put my money in the bank with a low return’.
This imbalance in supply and demand is creating strong competition for good investment properties and yields are tightening as a result.
The competition seems to be strong across all asset classes and price ranges, whether it is a mum and dad looking to invest through their super fund, typically up to $5 million, an experienced private investing looking to increase their portfolio with a property between $5 and $30 million, or a listed property trust looking to spend $40 million +.
In our 10 plus years of experience this would have to be one of the most challenging markets we have seen to source and complete a good commercial investment transaction.
How do Prosper Group commercial buyers agents find good investments in a such a competitive and low supply market?
Regularly we are purchasing properties on behalf of our clients which are OFF MARKET.
The main reason for this is that transactions have to be created as most vendors are not motivated sellers.
We work with agents across all markets to approach vendors who may be interested in selling but are not active sellers, to gain their interest and potentially agree on price and terms.
In order to increase the chances of a successful off market transaction we feel the following items are critical.
- Be well qualified and have the agent’s and vendor’s confidence that you will settle the transaction,
- Be able to move quickly to conduct the necessary due diligence in a short time period,
- Be able to assess the true market value quickly and confidentially. The true market value is not just based on recent sales and leasing transactions which is often a rear vision mirror approach, but applying a global view on the market conditions and how a particular off market property may sell if it was offered for sale on the open market.
- Have a planned negotiation strategy.
Off market transactions require patience and persistence. A high percentage of the off market transactions we have dealt with recently have not proceeded for various reasons outside the control of the buyer.
Although it may appear to be a challenging time to source and complete a transaction without having to pay above market values, we have shown with our track record of purchases that it is possible.
Below is a brief description of a recent off market transaction which we conducted for one of our clients. This property was a high exposure medical centre in Brisbane, fully leased with a WALE of 4.9 years and the anchor tenant was the national medical operator IPN. Medical centres are highly sort after by investors as typically once a medical centre is established it is very rare that they relocate. Further a medical centre is a destination tenant for a lot of customers, meaning other tenants want to be located next to them which typically means low vacancies for any specialty tenants surrounding the medical centre.
Feel free to contact Alex Henderson or Damien Holliday if you would like to discuss how we may be able to assist you in sourcing a commercial property in this strong market.