Higher interest rates have contributed to slowing commercial property sales, however, assets under $5 million are still popular with investors, according to an expert.
Ray White Commercial, Head of Research, Vanessa Rader said there have still been strong transaction volumes across industrial, retail and office assets.
“Both vendors and buyers have been more cautious with their property decision-making, and various investors have exited the market due to the greater difficulty and increased cost of financing,” Ms Rader said.
“However, there has still been more than $17 billion in sub $5 million sales during the year to May 2023.”
Ms Rader said small retail shops have proven popular with smaller investors in the past 12 months.
“The affordable price point of these properties has been the main drawcard for this asset type, averaging $1.01 million,” she said.
“There has been so much conflicting information about the future of retail, however, this has not deterred investors seeking out suburban shop fronts, with assets transacting $3.7 billion this last year.”
According to Ms Rader, both industrial freehold and industrial units continue to be a popular choices for investors.
“Industrial has been the favourite investment class to purchase over the last few years,” she said.
“This has continued into 2023, with any smaller freehold assets in strong demand by investors and owner-occupiers.
“Future potential is a key consideration in this sub $5 million price point.”
Ms Rader said industrial units have been popular with ‘mum and dad’ investors and first-timers, together with small business owners looking to shelter from rising rents.
“These small investments were also used as storage units by some buyers, with the growth in the ‘man shed’ phenomenon over the last few years,” she said.
“The average sale price of sub $900,000 is an attractive price point, fuelling continued investment across the country.”
Despite the negative press across office assets due to the increase in work from home, buyers are also continuing to seek out quality office assets Ms Rader said.
“Again, (this is) price point driven with the average sale price $878,000, buyers have been active in NSW and Victoria with an uptick in ACT, Queensland and WA locations,” she said.
Meanwhile, larger development sites across all zoning have been the next most active asset class, with residential the clear leader and industrial not far behind.
She said buyers were looking to landbank or capitalise on future opportunities, albeit at the right price.
Ms Rader said smaller hotels and motels are also becoming something investors have been focused on.
“While there are limited opportunities in the sub $5 million price range, we have seen a number of regional assets transact over the last 12 months, growing this investment share,” she said.
“Older-style motels are a favourite of owner-occupier operators and seasoned investors for redevelopment opportunities during a time where domestic travel continues to be at a high rate.”
According to Ms Rader, more specialised properties like service stations and childcare facilities also continue to get investors’ attention, because of their long leases and “set and forget” nature.
She also sees showrooms and regional pubs as being good options for smaller investors.
