Over the past 12 months, the COVID-19 pandemic has impacted the commercial property market across the country, lockdowns, border restrictions, forced business closures and work from home requirements has had a devastating impact on all businesses which has seen accommodation needs change.
Encouragingly however for Queensland and more locally Gold Coast is the stringent policies which kept infection rates down. This has drawn attention back to the sunshine state resulting in strong gains in interstate migration notably from Sydney and Melbourne growing the local population. This uptick has fueled the resurgence of the local economy resulting in an increase in small business numbers and growing the need for commercial accommodation.
Low interest rates have put the spotlight once again on commercial assets across the country as an alternative to the residential market, volatile share market or low bond market, this has resulted in record levels of demand for investment stock. As owners navigate issues of rental relief and uncertainty in the economy, many have adopted a “wait and see” attitude reducing the volume of stock on the market. Given this growth in investment interest from both local and interstate buyers we have seen auction clearance rates and capital values improve while new lows in yields emerge as more owners feel confident to enter the market.
HISTORICAL SALES VOLUME AND TRANSACTION NUMBER
During the 2020/21 financial year we have recorded $1.16 billion in commercial sales, across 388 transactions. This represents a 4.49% increase on 2019/20 results while the number of sales recorded is down -4.20% over the same period.
Despite the uncertainty in the economy this year, we have not seen buyers shy away from investing in commercial assets however hesitation by vendors to come to market has continued. Across the total market the average sale price this period was $2.99million which is slightly up on prior years, however the volume of sub $1 million sales has been one of the greatest ever recorded.
Investments in this lower price point, often with limited borrowings has been the investment of choice particularly in the industrial asset class which has performed well during this COVID-19 period. While retail and office assets have seen some reduced sentiment due to changing consumer and working behaviours if not secured with a quality lease covenant.
"WHILE VACANCIES CONTINUE TO BE ELEVATED COMPARED TO PRE COVID-19 LEVELS, WE CONTINUE TO SEE INCREASED ENQUIRY AND GOOD TAKE UP OF WELL-LOCATED ASSETS ACROSS ALL ASSET CLASSES ACHIEVING RATES AKIN TO THIS PERIOD"
2020/21 GOLD COAST COMMERCIAL TRANSACTIONS
Over this past 12 months we have seen retail account for over 43% of all transactions across the Gold Coast, this is due to the a number of larger ($50 million +) deals which have taken place including The Oasis Shopping Centre, Coomera Town Centre and Homelife Robina. Industrial sales continue to be in the greatest demand by a range of owner occupiers and private investors both locally and from across the country given the uptick in demand by occupiers both small business and logistic, transport and warehouse users due to the increases in e-commerce.
While there have also been a number of larger institutional industrial deals completed across the Gold Coast this year, we continue to see high volume of smaller deals keeping the average industrial sale price to just over $2 million, the sub $1.5 million price point most active recording over 140 transactions this year.
Given the reduction in tourism across the country, we have seen limited hotel transactions completed this year however pubs continue to trade well. Development sites did see some slowdown in 2020 however has picked up again in 2021 and now accounts for 7.36% of all sales. Alternative investments such as medical and childcare continue to be in hot demand by investors however the limited stock on the market has kept these levels reduced over this period.
GOLD COAST COMMERCIAL YIELD RANGES
With demand outstripping supply of stock, we have seen some decrease in investment yields. The range of rates achieved continues to be wide as quality offerings with strong lease covenants have attracted new lows while vacant or secondary asset yields continue to achieve rates in the upper end. Industrial investments have seen significant tightening with yields as low as 3.70% being recorded keeping the average yield competitive at 5.60%. Retail results have been skewed by the large institutional deals completed this year showcasing a range between 4.28% and 10.00%, similarly for office where the rates range from 3.80% to 8.43% representing an average of 6.86%.
Alternative investments have been a huge growth area for private buyers over the last few years, the long term, secure income stream making it an attractive investment choice compared to the low bond rates currently on offer. Investment into assets such as service stations, fast food, medical and childcare have been hotly contested by buyers across the country resulting in a competitive average yield of just 5.58% with many examples of assets selling in the sub 4.00% range.
The outlook for the Gold Coast market remains bright, the recent announcement that the Olympics will be held in South East Queensland in 2032 will fastrack infrastructure projects and put the international spotlight on the region.
The relative affordability of assets has not gone unnoticed by savvy investors growing activity and reducing yields, this trend is expected to continue given the expectation of low interest rates over the short to medium term.
The growing population and attractive residential house prices will do much to foster the entrepreneurial spirit across the Coast, increasing new business starts and need for commercial accommodation.