Australia’s premium commercial properties to increase in value
Despite turbulent times, premium commercial properties are increasing in value and that’s expected to continue well beyond the pandemic.
What is premium commercial property?
Premium commercial properties are high-yielding, top quality properties found in the top price bracket (usually valued at tens of millions of dollars and beyond). Factors that determine a premium commercial property include its location and accessibility, size, infrastructure quality, security, resilience as well as the reliability, quality and lease term of its current tenants, who are often large organisations or government.
What trends are we seeing in premium commercial property?
Through the rollercoaster of COVID-19, local, national and international investors are continually drawn to premium commercial properties across Australia. With Australia generally showcasing an effective and encouraging response to the pandemic, especially in comparison to other countries, the premium property market now promises sustainable, long-term growth for investors.
COVID-19 has also been a catalyst for a rare event to occur in premium commercial property. Rents have been driven down, with many financially struggling tenants forced to enter into rent relief negotiations and landlords desperate to retain their tenants. Capitalisation rates have also decreased, with market circumstances seeing properties generating a lower operating income.
But despite these factors, valuations are actually increasing. Why?
The significant and growing demand of premium commercial properties is being met with historic low interest rates, a relatively low supply of properties on the market and a resilient national economy.
As a result, premium properties are quickly being snapped up at top prices. And expert economists believe that the prices of these high-quality assets are expected to stay put or grow. So, with low rents but higher valuations, we’re seeing a rare situation with a silver lining for investors and a win for tenants too.
Premium office space deals increasing
Premium office buildings with strong tenants are performing well, with several major commercial property deals occurring across Australia during the COVID impacted months, some of which are even setting new records.
In April, a tenanted office building was sold for $39.3 million in the ACT. Later in August, Adelaide saw its biggest office property sale in over two years, with a fifteen-storey building selling for $174.65 million. Recently in Wollongong, a five-storey office building tenanted by the Australian Taxation Office saw a record high sale of over $57 million. These sales are also expected to continue late into 2020, with over $6 billion worth of office towers now on the market in Sydney’s CBD.
Which other sectors should you be looking at?
It’s not just office buildings catching investors’ attention. In recent months, investors have nabbed about $1 billion worth of petrol stations, childcare centres, housing sites, supermarkets, major retail outlets, bank branches, industrial spaces and more.
This comes as no surprise, with non-discretionary retail, fuel and convenience outlets, and storage warehouses providing some of the biggest investment opportunities in 2020. As consumer behaviours, values and lifestyles have drastically changed through the pandemic, new demand has been created for these properties and is expected to continue in the long-term future.
Get advice on premium commercial property
Investing in premium commercial property is a huge opportunity, but comes with a big price tag and risks.
So it is critical to seek advice from a commercial property adviser who can help you make the right decisions based on the latest research and data.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property