THE INSIGHT WESTERN COMMERCIALAUSTRALIAINVESTMENT ACTIVITY FINANCIAL YEAR REVIEW AUGUST 2022
The commercial property market has had an interesting ride since the onset of COVID-19. The immediate reluctance to transact followed by interest rate reductions and available finance which caused demand to soar across most asset classes across the country resulting in new highs in turnover.
INTRODUCTION
Supply chain issues causing construction costs to increase while demand for industrial stock has never been better showing quality rental growth during a time of high inflation. However, as we entered into 2022, caution had returned, the anticipated and subsequent interest rate rises resulted in many first-time buyers leaving the market, interstate speculators go home resulting in transaction levels to slow down to a more normalised level.
The outlook ahead will have mixed results, demand remains high for some assets which will continue to dictate rental growth and proving to be a safe hedge to inflation, while others will be hurt by the narrowing yield spread to bond rate as the cash rate continues to increase. Financing has become a little more difficult and yields will need to adjust given the interest rate projections. For WA, the strong economic position, high employment together with population gains will be positive for business growth and their accommodation needs. These market conditions are ripe for more experienced investors and may be come uptick in demand for vacant assets with development upside or repositioning opportunities albeit at the right price.
There has been some uptick in office transactions over the last year, growing 34.12% to $1.21billion, thanks to a handful of larger CBD sales which occurred early in the financial year. Post these sales, the office market has been relatively quiet with bulk of activity occurring in the sub$5million price point in fringe markets. This is indicative of the private investors notably interstate buyers looking to capitalise on attractive yields during this time of low cost of finance; however, these pools of buyers have slowly eroded during 2022 given the rapid and projected interest rate Overall,rises.the Perth office markets have had some good fortune over this last year, demand has increased, and vacancies have seen some compression from the high rates they have been at over the last few years. Vibrancy has remained in the city compared to east coast markets given the stringent border policy and limited working from home impacts.
While there has been some improvement, it continues to be slow which will ensure rental growth will remain limited despite the high inflationary environment. We expect that investment will remain subdued next year with interstate speculators leaving the market and some upward yield movement inevitable.
4
WA TRANSACTION VOLUME OFFICE MARKET RealCommercial,WhiteRaySource: PIMSAnalytics,Capital
5
Industrial continues to be the most active asset class this year, after strong gains during the pandemic period demand to purchase industrial stock has gained pace and reached new highs. Over this 12-month period we have recorded $2.59 billion in sales transactions, up 72.68% on last year’s results which was a six year high. Setting a new benchmark in annual turnover, the industrial market has benefitted from demand to occupy space particularly in the warehousing, logistics and transport sectors, this has resulted in rapidly falling vacancy rates and rising rents. While institutional investment has been high these last two years, we saw particularly in late 2020 through to the end of 2021 private investors capitalising on low interest rates and owner occupiers looking to shelter from rising rents aggressively enter the market. As such we have seen significant tightening of yields and many buyers moving up the risk curve which saw the yield spread between prime and secondary stock compress. However, given the rising interest rate environment, many of these less sophisticated buyers have left the market and we expect to see some decline in volumes over the next year.
WA
TRANSACTION VOLUME INDUSTRIAL MARKET RealCommercial,WhiteRaySource: PIMSAnalytics,Capital
RAY WHITE COMMERCIAL (WA)6
WA TRANSACTION VOLUME RETAIL MARKET RealCommercial,WhiteRaySource: PIMSAnalytics,Capital
It’s been another quiet year for retail transactions across WA, with $853.7million changing hands albeit still up 7.33% on last year. It’s no surprise that retail has been the most impacted asset class during the pandemic with lockdowns affecting trade with an increase in online trade, resulting in forced closures. Vacancies have seen increases over this past two years however demand has remained from investors for quality offerings, particularly during a time of low interest rates and available finance. With financing expected to be more difficult in the coming years we may see some yield movement in assets which previously were performing well, including high quality, long term tenanted investments and smaller conveniencebased retail centres. Many savvy owners of retail assets however have managed rising vacancies with adapting to new tenant types with the service sector continuing to increase while medical, childcare, co-working are all examples of tenants now occupying what previously was retail space. It is likely we will see more repositioning of assets over the coming year to aid in keeping occupancies up and vibrancy in our centres.
Another difficult year for the tourism industry with border reopening occurring late in the financial year, this was instrumental in keeping volumes down with buyers and sellers putting investment decisions on hold. Across the state we have recorded $110milion in sales up on last year which is indicative of a number of smaller transactions.
TRANSACTION VOLUME HOTEL & LEISURE MARKET RealCommercial,WhiteRaySource: PIMSAnalytics,Capital
While there were a handful of chain hotel sales in the metropolitan area, the bulk of sales were for lower value motel and tourism assets notably in the regional markets. With travel back on the radar for many domestic travellers keen to stay within Australia and a return to business travel, hotel occupancy rates have seen rapid improvement along with average daily room rates. The drive holiday market remains strong in WA, with regional assets also enjoying good returns which will continue interest for this segment of the market. With international travel back, we may see foreign buyers look again to Perth as a quality investment destination for 4 and 5 star graded assets.
WA
WESTERN AUSTRALIA COMMERCIAL INVESTMENT ACTIVITY 7
TRANSACTION VOLUME DEVELOPMENT SITES RealCommercial,WhiteRaySource: PIMSAnalytics,Capital
The development market continues to be subdued over the last year despite residential prices seeing significant growth and vacancies at record low rates. This financial year we have recorded $110.3million in development site sales, down -53.24% on the prior year; results are in contrast with anticipated results however the escalation in both construction costs and labour has been a key factor as well as the disruption to supply chains. WA has enjoyed a swift increase in interstate migration, this growing population trend is expected to maintain which will result in a rapid need for new housing across the state. There will be increased pressure on the planning system to move swiftly in order for sites to advance and deliver a variety of accommodation options in this low vacancy environment. This is a trend seen across the country with a number of builder casualties unable to weather the uptick in costs and labour shortages.
WA
Another big year for childcare and medical assets eclipsing the highs achieved last year, volumes are up 25.49% to $321.3million as private investor groups continue to pursue these assets. The high government subsides remain attractive to buyers in this space as well as the often-long term, secure leases in place not to mention the quality and standards in which assets are kept to. Medical services are a growing segment of the market, catering from not only our aging population and children but the growing mid-market focusing on sports and cosmetic medicine together with natural therapies. While demand may have been heightened by COVID-19 for pathology and general practise, the need remains high particularly given the rising interstate migration numbers which WA has enjoyed. High occupancy and attractive rents make medical assets quality offerings for commercial investors which have seen yields tight. Similarly, the attractiveness of childcare and its long term, fixed increase lease structures give investors certainty on income stream, however as interest rates rise, the spread to these rates have narrowed.
WESTERN AUSTRALIA COMMERCIAL INVESTMENT ACTIVITY 9
WA TRANSACTION VOLUME MEDICAL/CHILDCARE RealCommercial,WhiteRaySource: PIMSAnalytics,Capital
The outlook for the commercial property market, regardless of location seems uncertain. Rising interest rates and greater difficulty in obtaining finance will yet again become a feature of the market which will see buyers more cautious. For WA, the strong economic position of the state is encouraging with low unemployment and improving demand for employment accommodation including office and industrial facilities. Some of the less experienced investors and interstate speculators have already exited the market making this time one of opportunity for more experienced buyers. We will see continued demand for some assets such as industrial, notably from owner occupiers seeking to shelter from rising rents in this high inflation environment, while tenanted offerings may be more scrutinized and yield movements will follow with greater con sideration on the spread to bond rate as well as basic property fundamentals.
10 RAY WHITE COMMERCIAL (WA) SUMMARY
Office Market $1.21b ↗ 34.12% Industrial Market $2.59b ↗ 72.68% Retail Market $853m ↗ 7.33% Hotel & Leisure Market $110m ↗ 70.01% Development Sites $110m 53.24%↗ Medical/Childcare $321m ↗ 25.49%
11WESTERN AUSTRALIA COMMERCIAL INVESTMENT ACTIVITY 2021/22WestAustraliancommercialinvestmentactivityfinancialyearreview
RAY WHITE COMMERCIAL (WA)12 JANDAKOT AIRPORT Jandakot WA Jandakot Airport is the 2nd busiest airport in Australia with a major industrial precinct surrounding it. Spanning 620 hectares 20km south of Perth the purchase included 49 fully leased properties to 54 tenants over 360,000m2* of buildings with a 7.6 year ThereWALE.is an additional 80Ha of development land. The holding is on a 99 year ground lease with 76 years remaining at purchase. Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Sales Analysis Sale Price $1.3 billion Sale Date Oct 2021 NLA Area 360,000m2 Land Area 620 Ha Yield - Leased 4.65% Price - Investments $875 million Price - Development Land $225 million Price - Airport Operations $200 million Vendor Ascot Capital Purchaser Dexus & APN Industria REIT CASE STUDIES
WESTERN AUSTRALIA COMMERCIAL INVESTMENT ACTIVITY 13 FREMANTLE INDUSTRIAL/WAREHOUSE Fremantle WA, 2 & 4 Stack Street & 34, 36 & 38 Amherst Street A 10,311m2 industrial/warehouse/vacant land site situated on the corner of Stack & Amherst Street, Fremantle. 2 & 4 Stack Street & 34,36 & 38 Amherst Street is 6 minutes from Fremantle Harbour & 25 minutes from Perth CBD. The sites were owned by three different owners with 38 Amherst being an on-market transaction with direct off-market approaches made to the other sites. Locas group are proposing a future residential development including 60+ townhouses. Stephen Harrison + 61 421 622 777 stephen.harrison@raywhite.com Sales Analysis Sale Price $10,454,320 Sale Date Jan 2022 Land Area 10,311m2 Vendor VYSFRY Pty Ltd & Ian McCarthy Purchaser Locus Group DEVELOPMENT SITE IN AWARD WINNING RESIDENTIAL ESTATE Jolimont WA, 187 Salvado Road The 2,305m2 site, located at 187 Salvado Road, is R80 zoned which enables four to six storey residential development, with a plot ratio of 2:1. The planning framework provides for in excess of 40 residential apartments and up to six Michaelstoreys.Milne + 61 403 466 603 michael.milne@raywhite.com Sales Analysis Sale Price $4,350,000 Sale Date Jun 2022 Land Area 2,305m2 Vendor Local Developer Purchaser Kingsfort HT Pty Ltd CASE STUDIES
RAY WHITE COMMERCIAL (WA)14 BUNBURY HEALTHCARE PROPERTY South Bunbury WA, 114 Spencer Street The property comprises a totally refurbished specialist centre on a prominent location in the medical heart of Bunbury Leased to St John of Gods for 10 years on a triple net lease there is also the opportunity for a future extension of the building. Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Sales Analysis Sale Price $4,100,000 Sale Date Nov 2021 Land Area 2,023m2 Vendor Sunfelt Pty Ltd Purchaser Barwon Property Funds Management Pty Ltd HALLS HEAD MEDICAL CENTRE Halls Head WA, 66-70 Mahogony Drive & 1-5 Peelwood Parade The Halls Head Medical Centre comprises 7 specialised medical buildings over 7 lots with long leases to a Medical Centre, Specialist Centre, Skin Clinic, Allied Health, Respiratory Clinic, Pharmacy and Pathology. Ray White Commercial (WA) acted for the buyer in identifying the opportunity and negotatiating purchase. Josh Sumner + 61 488 221 331 josh.sumner@raywhite.com Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Sales Analysis Sale Price $23,435,000 Sale Date Sep 2021 Land Area 6,075m2 Vendor Private Purchaser RAM Australia CASE STUDIES
WESTERN AUSTRALIA COMMERCIAL INVESTMENT ACTIVITY 15 CASE STUDIES CORPORATE HEADQUARTERS Belmont WA, 191 Great Eastern Highway The 10,954m2 property at 191 Great Eastern Highway was purchased by St John Ambulance WA who plan to occupy the premises. The substantial landholding includes a large office building, comprising 3,316m2 of office space and 626m2 of warehouse space, just 10 minutes from Perth CBD. Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Chris Matthews + 61 413 359 315 chris.matthews@raywhite.com Sales Analysis Sale Price $10,500,000 Sale Date May 2022 Land Area 10,954m2 Vendor Pindan Purchaser St John Ambulance WA 4,163M2 DUAL TENANT PRIME INDUSTRIAL INVESTMENT Kewdale WA, 7 Ballantyne Road Located at 7 Ballantyne Road, the property comprises a 2,775m2 building on a 4,163m2 site. The multi-tenanted facility is a modern high truss industrial warehouse with offices over two Chrislevels.Matthews + 61 413 359 315 chris.matthews@raywhite.com Martin Vogt + 61 428 619 514 martin.vogt@raywhite.com Sales Analysis Sale Price $5,100,000 Sale Date Apr 2022 Land Area 4,163m2 Vendor Private Seller Purchaser Local Investor
RAY WHITE COMMERCIAL (WA)16 GREEN TITLE WAREHOUSE Osborne Park WA, 78 Howe Street The 825m2 Green Title lot with 19m frontage to Howe Street includes 518m2 of office/ warehouse improvements and would be suitable for a range of end users. Prominently located in the premium Osborne Park Industrial/Commercial precinct and strategically positioned on Howe Street only 100m from the Howe and Hutton intersection providing easy access to the Mitchell Freeway and Scarborough Beach Road. Tom Jones + 61 478 771 117 tom.jones@raywhite.com Lachlan Burrows + 61 499 552 296 lachlan.burrows@raywhite.com Sales Analysis Sale Price $1,150,000 Sale Date Oct 2021 Land Area 825m2 Vendor Private Purchaser Private FULLY LEASED INVESTMENT IN PREMIUM LOCATION Osborne Park WA, 33 Hector Street 4,309m2 of well-maintained warehouse improvements positioned on a Green Title 6,883m2 land holding prominently located on Hector Street backing onto the Mitchell Freeway. The improvements are spread over 8 tenancies which are fully leased and generating a net income of $319,164pa net over a 2.2-year WALE. Tom Jones + 61 478 771 117 tom.jones@raywhite.com Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Sales Analysis Sale Price $4,900,000 Sale Date Jul 2021 Land Area 6,883m2 Vendor Ioppolo Nominees Pty Ltd Purchaser Private Investor CASE STUDIES
WESTERN AUSTRALIA COMMERCIAL INVESTMENT ACTIVITY 17 COASTAL MOTEL WITH DEVELOPMENT OPPORTUNITY Bunbury WA, 123 Ocean Drive & 14 Greensell Street Consisting of two adjoining properties with duel street frontages and a total land holding of 3,400m2. Stephen Harrison + 61 421 622 777 stephen.harrison@raywhite.com Phil Zoiti + 61 419 993 656 phil.zoiti@raywhite.com Sales Analysis Sale Price $3,020,000 Sale Date Dec 2021 Land Area 3,400m2 Vendor Local Investor Purchaser Local Investor IBIS STYLES - KUNUNURRA Kununurra WA, 47 Victoria Highway 60 room hotel featuring a bar with outdoor terrace area overlooking the pool, restaurant, conference room plus a managers unit with frontage to Victoria Highway and Lake Kununurra. Phil Zoiti + 61 419 993 656 phil.zoiti@raywhite.com Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Sales Analysis Sale Price $2,200,000 Sale Date Aug 2021 Land Area 9,141m2 Vendor Private Purchaser CGL Accommodation Pty Ltd CASE STUDIES
RAY WHITE COMMERCIAL (WA)18 FULLY LEASED COMMERCIAL/RETAIL INVESTMENT Subiaco WA, 290-300 Hay Street 290-300 Hay Street, Subiaco presents as a fully leased commercial property investment with an impressive net return and an equally stunning presentation. This property comes with strong underlying land content with a prominent mainstreet location in the heart of Subiaco. The new planning scheme provides for significantly higher density development outcome. Michael Milne + 61 403 466 603 michael.milne@raywhite.com Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Sales Analysis Sale Price $4,500,000 Sale Date Sep 2021 Building Area 1,144m2 Vendor Primewest Private Syndicate Purchaser Private Investors HIGH-PROFILE RETAIL UNITS Perth WA, 11 Barrack Street Four individual retail strata lots forming the ground floor of The Towers at Elizabeth Quay. The Towers sits alongside the new Ritz-Carlton, the new headquarters for Chevron and over $2 billion worth of development in the area. Brett Wilkins + 61 478 611 168 brett.wilkins@raywhite.com Phil Zoiti + 61 419 993 656 phil.zoiti@raywhite.com Sales Analysis Lot 278 Sale Price $4,000,000 Building Area 296m2 Passing Yield 6.1% Lot 276 Sale Price $6,000,000 Building Area 424m2 Passing Yield 5% Lot 279 Sale Price $1,505,000 Building Area 116m2 Passing Yield 5.4% Lot 280 Sale Price $1,345,000 Building Area 106m2 Passing Yield 5.4% ' Vendor Far East Consortium Purchaser Private Investor CASE STUDIES
RAY WHITE COMMERCIAL (WA) Ray White Commercial (WA) Ground Floor 12-14 The Esplanade Perth WA 6000 August 2022 raywhitecommercialwa.com.au