Regions in top form for investors
Regional commercial real estate is proving resilient in the face of rising rates with interest remaining high from both seasoned and new investors agents say.
“One of the key trends we’ve seen this year is the strength of regional assets across Australia,” said Burgess Rawson agent Matthew Wright.
“Investors are willing to look at all areas of the country now rather than the traditional capital cities and inner metro locations. We have seen demand and growth for properties in Far North Queensland where the market didn’t suffer the same effects from covid as other regions around Australia.
“So much is the growth of Far North Queensland we have recently opened an office in Townsville which will facilitate the servicing of the Far North Queensland region.”
Shifting populations
Regional CRE gained considerable momentum over the year to June 2021 when for the first time in 30 years more people moved from capital cities to rural areas. ABS data shows some 70,900 people left city life during that period, while the population across the eight metropolitan cities decreased by a total 25,985.
The influx across non-metro areas has now stimulated labour markets to the point that the National Skills Commission forecasts over 250,000 jobs will come available across regional Australia in the five years to 2025. It all signals good news for commercial property and investors as growing regional populations continue to create greater need for retail, office and industrial real estate.
ABS research shows areas beyond big city lights now hold just under a third of the Australia’s 25.75 million population base. Most are not moving far, venturing less than 150km from a metropolitan centre. This is reflected in the fact some of the country’s fastest growing non-metro areas include the Gold Coast in Queensland, Wollongong in NSW and Ballarat in Victoria – all of which are within an hour of their state’s capital city.
Catering for demand
Burgess Rawson is among those commercial agencies to have added new regional offices, the most recent in the Victorian town of Mildura and another in Townsville in Far North Queensland. General manager of Burgess Rawson’s Mildura office Wendy Thomson said the volume of new residents that swapped major Victorian cities for a new lifestyle in Mildura had not only driven up residential prices but fuelled a” hot” commercial market.
“Although covid impacted some sectors regional commercial investment demand has been high for food chain, warehouse and distribution assets,” Ms Thomson said.
PRD Research also attributes the flight from the cities as a key reason behind the buoyancy displayed this year within the commercial property sector of major NSW regional centre Wagga Wagga. The largest local government area in the Riverina Region, Wagga Wagga experienced an uplift in demand for its commercial and industrial property as businesses returned to normal, the rural sector performed at record levels and significant government investment flowed into the region’s transport infrastructure. “It also reflects the tree-change trend, with many businesses moving or opening a new presence in regional areas,” PRD analysts said.
Due diligence always top priority
Scott O’Neill, CEO of Rethink Investing Rethink Investing | Commercial Property Buyer’s Agency Australia, said that as with metropolitan investments, it was imperative investors looking at regional assets performed due diligence on each individual property regardless of how well the its local economy was faring. “It’s important to weigh up the benefits of each location and property on their own merits,” Mr O’Neill said.
“When examining city versus country it’s important to take a pragmatic approach and assess the fundamentals of each property from a local perspective. For example, if you’re buying a shopping centre you need to do the same risk analysis of a 5km radius around the property. Just because it’s in the city versus the country doesn’t change the risk of the asset as it is still influenced by the radius around it and not the entire city as a whole.
“Some markets like industrial property in Brisbane have been growing at over 10% per year, while equally as impressive has been the Townsville industrial market with similar growth rates and even higher yields. Clearly both regional and city locations have the potential to perform very strongly.”
Here Mr O’Neill details the pros and cons of regional commercial property investing:
PROS
Better dollar for dollar deals – “Your money stretches further so you can acquire bigger,” Mr O’Neill said. “Similar to the above, you can get more value for money when you purchase in a cheaper regional centre. This can mean higher yields, larger land size, more tenants and bigger well-known tenants. You pay a price to be in the city and this can push many investors to consider larger assets in regional areas.”
Higher yields. Regional city commercial property produces higher yields due to the applied risk that vacancies might be higher. Also, capital growth might be looked at as a lower probability which can result in higher yields, Mr O’Neill said.
Faster growth at certain points in the cycle. “If you time purchasing in a regional market well, you might in fact find you get faster capital growth rates,” Mr O’Neill said. “This is due to the simple supply demand ratio of the commercial market. For example right now there is massive demand for good quality regional assets for the superior yields. As the supply of these types of properties are rare, the extra demand has a direct influence over the price. Hence faster growth can be the result.”
CONS
Longer vacancies can be possible due to a smaller pool of tenants – a factor influenced by the amount of supply of similar properties available for lease.
Lower LVR’s. “You might not be able to lend to 70% like you could in a capital city. We most often see 65% as the common lending ration for regional commercial properties from major banks.”
DISCLAIMER: The information in this article does not take into account your individual objectives, financial situation or needs. We recommend that you obtain financial, legal and taxation advice before making any decision.