Investment Report - Ray White Commercial Northern Corridor Group

2021 COMMERCIAL INVESTMENT PROPERTY SUMMARY Produced by: Ray White Commercial Northern Corridor Group

While the strong back half of 2020 caught most by surprise, the general momentum of 2021 was more in line with expectation. Yields continued to compress, with more than $43 million of sales by our group achieving returns in the 5% bracket! With buyer demand accelerating through the back half of 2021, it appears that tightening supply of quality properties is the only thing that can stop 2022 from being another record year for the Northern Corridor commercial property market.

TOTAL SALES VALUE 2020 $59,873,000 2021 $110,830,750

AUSTRALIAN COMMERCIAL INVESTMENT (SUB $50MILLION)

BY MONTH ( 2020 V 2021)

NUMBER OF SALES 2020 2021

39 71

(millions)

YOY 86% INCREASE

YOY 82% INCREASE AVERAGE YIELD 2020 2021

Source: Ray White Commercial, PIMS, RCA

7.25% 6.42%

YOY 0.82% DECREASE Both the value and number of sales speak to a very robust market, but they only tell half the story. Rather than dwelling on vague numbers and marquee one-off sales, we have dug into the details of tenanted investment activity across the Northern Corridor in 2021 to identify the true opportunity for commercial property owners and investors in 2022.

$89M $2.9B WA

$8.9B

NT

QLD

$2.3B

$14B

SA

NSW

$10B VIC

$406M ACT

$485M TAS

raywhitecommercialnortherncorridorgroup.com.au

AN APPETITE FOR SPECULATIVE INVESTING Produced by: Ray White Commercial Northern Corridor Group

Enquiry for tenanted investments was strong through 2020 but then took a noticeable increase in each quarter of 2021, averaging more than five enquiries a day for the second half of the year.

INVESTMENT ENQ. VS QUARTER 300 250 200 150 100 50 0

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02

12

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22

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32

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$5,000

$10,000

$15,000

AUSTRALIAN COMMERCIAL INVESTMENT (SUB $50MILLION)

BY ASSET CLASS ( 2020 V 2021)

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The immense competition for traditional passive investments with name-brand tenants has driven investors to look at more speculative options. What the tenanted sales numbers above do not show are the number of vacant units that have been purchased by investors across our region.

This is especially true in the industrial sector, where the record low vacancy rates are giving these investors the confidence to buy vacant and rely on the pent-up demand and growth of the Northern Corridor.

This is also driving speculative industrial development in estates such as Aura and Corporate Park East, as builders can rely on off-plan sales to de-risk their projects.

Where is the opportunity for you?

• Capitalise on the strong speculative investor market and offload any property in your portfolio that is a headache or does not fit your long-term investment strategy • Advertise vacancies for “Sale and Lease”, rather than just lease. The advertising costs are almost identical and it opens the possibility of creating competition between investors and owner-occupiers

raywhitecommercialnortherncorridorgroup.com.au

INTEREST RATES, OUTGOINGS AND CPI GROWTH Produced by: Ray White Commercial Northern Corridor Group

After a long run of record low interest rates, it is safe to say we can expect to see increases in our future. Reserve bank murmurings of rate rises are definitely factoring into the decision making for larger investors, but seem to be more than offset by record home equity growth for those in the sub-$3 million price range.

the impact of potential future interest rate rises in the medium term. Where CPI reviews in leases have proven to be a liability in recent years with a consistent increase of less than 2% over the past 4 years, we now expect investors to view these more favourably than conservative fixed percentage reviews.

CPI increases have traditionally led (or led to) interest rate rises, a pattern we are now seeing play out again. The latest CPI figures (December 2021 Qtr) have rents increasing at over 4.3% per annum. This rental growth will help to offset

Our team is also finding that in current lease renewal negotiations, national tenants are proposing 3% fixed increases, which is an indication that they may also be anticipating a period of CPI above the 3% mark.

INCREASE % VS QUARTER 6

While the topic of outgoings increases draws less attention than CPI and interest rates, the impact on true investment return is often more significant. The latest outgoings audits of our 280 management properties showed many had a year on year increase comfortably in excess of CPI. This means some owners of properties with gross leases have actually experienced negative net rental growth.

4

2

0

-2

Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 17 17 18 18 18 18 19 19 19 19 20 20 20 20 21 21 21 21

Where is the opportunity for you?

• Work with your agents and property managers to consider transitioning from a Gross to a Net Lease in any upcoming Lease renewal • Aim towards achieving a rental review mechanism in the Lease as “The greater of CPI or 3%” to give you the best of both worlds

raywhitecommercialnortherncorridorgroup.com.au

COMPRESSING YIELDS IN THE NORTHERN CORRIDOR Produced by: Ray White Commercial Northern Corridor Group

Q4 2021 was the sixth consecutive quarter of yield improvement since the start of the pandemic, which at the time averaged a staggering 7.79%. Industrial and medical are leading the way, with more than $43 million of sales by our group achieving returns in the 5% bracket.

YIELD VS QUARTER 8.00% 7.50% 7.00% 6.50% 6.00% 5.50%

0

02

12

Q

0

02

22

Q

While there are a number of factors that always influence yields, the one that has had the most unexpected impact in 2021 and into 2022 is buyer attitude (or even just awareness) of the Northern Corridor as a desirable investment destination.

Traditionally, Queensland has lagged significantly behind southern capitals in terms of desirability for investors and the Northern Corridor has

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42

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12

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lagged behind inner-Brisbane markets by as much as 1.5%.

However, 2021 reports show prime yields for Northern Corridor investments averaging only 0.33% higher.

We attribute this to the increased pool of buyers from southern states that have invaded the SEQ residential market and are now overflowing into commercial.

They seem to view the SEQ

1

02

22

Q

1

02

32

Q

Q

market on a more macro scale, compared to the granular suburb-by-suburb basis of local investors. The Brisbane Olympics announcement and an aggressive economic development strategy from both Moreton Bay and Sunshine Coast councils has cemented long term confidence for more buyers in the Northern Corridor commercial property market.

Where is the opportunity for you?

• Maximise your sale price by creating competition among the increasing pool of local and inter-state buyers

raywhitecommercialnortherncorridorgroup.com.au

1

02

42

TENANTED INVESTMENT STOCK WILL REMAIN CRITICALLY LOW IN 2022 Produced by: Ray White Commercial Northern Corridor Group

A worrying sign for the already frustrated buyer pool is the growing gap in the last two quarters between enquiry (demand) and transactions (supply). This ensures strong competition for new properties coming to market in 2022.

There is a perfect storm of factors that will continue to impact the supply-demand gulf for investment properties across the Northern Corridor. While low interest rates and southern investor growth are obvious drivers for passive investor demand, owneroccupier demand is having a compounding impact on supply for a number of reasons:

SETTLED INVESTMENT # VS QUARTER 30 25 20 15 10 5 0

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02

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32

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42

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42

1

ow interest rates and drastically L increased home equity have more business owners in a position to buy their own and secure their future

2

enants of investment properties are T proving to be the most likely buyers and the path of least resistance for sellers. Our team facilitated 19 sales of properties to tenants in 2021, many of which never hit the open market and are not reflected in our investment sales totals

3

Property owners remain reluctant to sell without a clear plan for where to reposition their money, in spite of record sale rates

Q

INVESTMENT ENQ. VS QUARTER 35 30 25 20 15 10 5 0

0

02

Q

12

0

02

Q

22

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02

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32

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42

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Where is the opportunity for you?

• The result of all this is a fever-pitch appetite for the few tenanted properties that actually make it to market • Even when selling directly to tenants, the best results have been achieved by actively marketing the property and putting all buyers into a competitive, time-sensitive sale process

raywhitecommercialnortherncorridorgroup.com.au

YOUR LOCAL MORAYFIELD TEAM NORTHERN CORRIDOR GROUP

INVESTMENT SALES SUBURB

BUILD SIZE

TRANSACTION PRICE

PRICE /M2

YIELD

Narangba

9142

$21,500,000

$2,352

5.73%

Caboolture

3348

$7,100,000

$2,121

6.40%

North Lakes

2009

$ 3,300,000

$1,643

6.76%

728

$2,075,000

$2,850

6.46%

1552

$1,670,000

$1,076

6.54%

Nambour

826

$1,250,000

$1,513

8.12%

Morayfield

516

$1,050,000

$2,035

6.14%

Caboolture

755

$910,000

$1,205

5.63%

Caboolture

380

$900,000

$2,368

6.93%

Kippa-Ring

550

$875,000

$1,591

6.41%

North Lakes

294

$730,000

$2,483

6.30%

Bellmere Burpengary

2021 TOTAL GROUP SALES VALUE

110,830,750

Chris Massie Northern Corridor Group

0412 490 840 chris.massie@raywhite.com

Aaron Canavan Northern Corridor Group

0447 744 948 aaron.canavan@raywhite.com

Deception Bay

396

$705,000

$1,780

6.54%

Narangba

320

$605,000

$1,891

6.74%

Narangba

321

$600,000

$1,869

6.40%

Narangba

197

$450,000

$2,284

6.55%

Michael Tutticci Northern Corridor Group

Caboolture

217

$405,000

$1,866

6.86%

0466 247 602 michael.tutticci@raywhite.com

Narangba Morayfield

35 98

$365,000 $245,000

$10,429 $2,500

5.95% 8.40%

CALL THE TEAM TODAY TO DISCUSS YOUR COMMERCIAL PROPERTY NEEDS

raywhitecommercialnortherncorridorgroup.com.au