2021 Year of The Investor | Ray White Commercial Northern Corridor Group

Commercial Research

BETWEEN THE LINES BRIEF 2021: The year of the new commercial investor February 2022

S UB $50MI LLI O N CO M ME RCI AL SALE S Total National Volume 2021

$39.45billion

83.92% on 2020 results Number of Sales 2021

20,421

133.33% on 2020 results Average Sale Price 2021

$1.93million

$89M $2.9B WA

$8.9B

NT

QLD

$2.3B

$14B

SA

NSW

$10B VIC

$406M ACT

$485M TAS

21.18% on 2020 results Source: Ray White Commercial, PIMS, RCA

2021 has been a standout year for commercial property investment, notably in the sub $50 million price range. Total turnover levels have eclipsed 2020 results by 83.92% reaching close to $40 billion in sales transactions across this lower price range. Over the past two years we have seen a greater availability of finance with low interest rates fueling new interest in commercial assets by first time buyers, notably in the sub $5 million price range. This has resulted in a rapid increase in sales activity in late 2020 and into 2021 as investors look to diversify their portfolio given the volatile share market and strong increases in residential values driving investment yields down.

Investment into commercial property has been widespread with most asset types and locations seeing significant uplift. NSW remains the most active state for investment recording over $14 billion, while Victoria, Queensland, WA, SA and Tasmania have all near or exceeded doubling their 2020 sales volumes as buyers look further afield for quality offerings. Population gains and stringent border controls in Queensland and WA putting the spotlight on these markets, while strong economic results in WA fueling a resurgence across commercial markets. We have witnessed many new commercial investors not afraid to venture interstate to secure leased investments across all price points.

AUSTRALIAN COMMERCIAL INVESTMENT (SUB $50MILLION)

(millions)

BY MONTH (2020 V 2021)

With FOMO firmly in place we saw strong auction clearance rates and the average sale price move up during parts of 2021 while investment yields hit new lows. Many of these buyers were looking for leased investments regardless of geographic location or even asset type with some markets seeing a convergence of yields to a similar low across all commercial property. Not to be discounted, the sub $1.5 million price range continued to perform well as owner occupier businesses looked to shelter from possible future rent hikes while small businesses borne from COVID-19 outgrew home operations needing small office and warehousing space growing turnover rapidly at this price point. This being the driving force behind the reduced average sale price in 2021 and the robust growth in sales numbers up 133.33% on 2020 results.

Source: Ray White Commercial, PIMS, RCA

AUSTRALIAN COMMERCIAL INVESTMENT (SUB $50MILLION)

BY ASSET CLASS (2020 V 2021)

Source: Ray White Commercial, PIMS, RCA

RESEARCH Vanessa Rader Head of Research | vrader@raywhite.com T: +61 2 9272 3700 | M: +61 432 652 115

When considering turnover levels over the past two years, we witnessed an immediate slowdown in commercial sales activity upon the onset of COVID-19. Volumes fell the second half of March 2020 and continued at a significantly slowed pace given lockdowns, restrictions and overall uncertainty in the economy.

During this time, we saw many owners adopt a “wait and see” approach which saw listing numbers drop however enquiry was starting to heat up. In the last quarter of 2020, we saw a greater volume of listings come to market as owners looked to capitalize on the growing demand in the marketplace and new lows in yields which were being achieved. This trend continued into 2021 with sales growing month on month through to July with new buyers emerging; many first-time commercial investors looked to the security of a long leased commercial asset despite the speculation regarding the longevity of some asset types such as office and retail.

Despite many buyers not discriminating against asset types, industrial remain the most active asset class over the past couple of years with many identifying it as the safest commercial property type emerging from COVID-19 given the growth in logistics and warehousing sectors. The wide range in asset values making this an attractive and affordable first-time purchase for owner occupiers or investors while the retail and office sectors which many tipped by many as likely to encounter difficulties due to growing vacancies have also grown their activity in 2021. The medical sector is one to watch with buyers actively pursuing these assets with their attractive income streams, similarly child care continues to be highly sought after given the long term, secure leases in place. The “set and forget” service station asset remains an investor favourite with new lows achieved in yields and volumes exceeding last years results, limited stock availability keeping total turnover levels down, while blocks of units remains attractive to investors looking to capitalize on continued future residential gains while enjoying an income stream. Despite the lockdowns and restrictions on trade over the past two years, this has not dampened demand for the pub sector with activity in both metropolitan and regional locations seeing uplift this year.

Looking ahead, with the weight of money available in the marketplace and low interest rates we expect to see continued growth in commercial investors entering the market. Strong gains in residential encouraging investors to look outside the box and consider these assets which are on offer across all price ranges making it an affordable option for many. Security of income however is paramount and with uncertainties still in our economy, restrictions on trade and travel ensuring the risks in investment remain. Cross border purchases will continue as investors seek out quality offerings with asset classes which offer long term, locked in income streams.

The information provided in this report is in good faith and has been derived from sources deemed accurate. The reproduction of any information herewith is strictly prohibited without the prior consent of Ray White Commercial. This is general information only and should not be considered a comprehensive statement on any matter and should not be relied upon as such. Neither Ray White Commercial nor any persons involved in the preparation of this report accepts liability for its contents. All forecasts and estimates are based on a set of assumptions, which may change.

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