Thursday, 25th June 2015
How to be competitive and get ahead in a strong market
There is currently a strong commercial property market which is being fuelled by record low interest rates, demand from developers and strong activity from owner occupiers.
The record low interest rate environment has created a strong market of investors who are predominetaly all looking for the same type of property with the following features or at least most of these features;
- Long term lease preferrably 5 years +,
- A recognisable tenant, either a national operator or ASX listed,
- Located in a metropolitan area, and preferablly in a strong surrounding suburb,
- Modern building that provides good depreciation benefits.
Examples of investments that are in high demand at the moment are;
- Service stations leased to 7 Eleven, Coles, or Woolworths which provide modern improvements, long term leases typically 10 years + , and usually at a price point of below $5 million. Typical net yields for these type of service stations range from 4% to 7%.
- Child care centres leased to strong operators with long term leases 10 years +, and usually at a price point of below $5 million. Typical net yields for these type of child care centres range from 4% to 7%.
- Stand alone retail operators like Woolworths or Coles or any of their subsiduary companies, with long term leases typically 10 years +. The strongest results have been for stand alone Woolworths food or liquor stores and Bunnings. Typical net yields for these type of retail stores range from 4% to 6.75%. An example is a modern stand alone Woolworths store in Bermagui (NSW south coast) with a 20 year lease that recently sold for $10.16 million or 5.16% net yield.
In the last 12 months the demand from investors has increased substantially and supply of good quality investments has not kept up. As a result good quality investments with characteristics mentioned above are being hotly contested by investors. To be competitive in this strong market an investor needs to be constantly ‘in the market’. ‘In the market’ means, buyers;
- Need to have an extensive database of contacts in the property industry including owners and agents and be in constant contact with these sources.
- Need to have a proven track record of purchasing property so that owners and agents recognise that they are strong qualified buyers.
- Need to be up to date on all the recent market values including sales and leases.
- Need to be able to act quickly and confidently if an opportunity arises.
- Need to have a team of property experts around them who also can act quickly and provide them with the right advice for all aspects of a commercial transaction including legal advice, market valuations, and building inspections.
If an investor is consistenly conducting all these activites then not only will they be competitive for properties that are ‘on market’ they can also get ahead of the market with ‘off market’ opportunities before they are advertised to the general market. An ‘off market’ opportunity provides an investor with the following benefits;
- Avoid the typical auction scenario where they have to conduct their due diligence upfront without any certainty of purchasing the property at the right price.
- Reduced competition from other buyers.
- Typically they will obtain an exclusive due diligence period once a price has been agreed with the vendor.
Prosper Group specialise in purchasing commercial property and are constantly ‘in the market’, with the aim of getting their clients ahead of the market. Below are a few examples of recent purchases of good quality investments that Prosper Group have conducted on behalf of their clients where they have got ahead of the market.
- Modern standalone IGA store (Head lease to Metcash) located in a Sydney metropolitan area with a new 15 year lease was purchased for $3 million, 6.4% net yield.
- High profile corner building located in the eastern suburbs of Sydney which is 100% leased to Commonwealth Bank was purchased for $5.6 million, 5.4% net yield.
- Modern retail building leased to two national operators with a WALE of 6.3 years and located in a strong regional location was purchased for $2.05 million, 7.8% net yield.
If you are interested in purchasing a commercial property and you would like to be competitive and get ahead in this strong market then contact Prosper Group to arrange an obligation free meeting.