Commercial investors flock to regional Australia

Record low interest rates, solid yields and fierce competition in metropolitan areas are driving investment in retail and commercial property in regional Australia, according to industry figures.

A recent Burgess Rawson portfolio auction in Melbourne and Sydney saw investors snap up $130 million worth of retail and commercial property across the country, including an office block in Echuca, in north-west Victoria, a Hungry Jack’s in Innisfail, a childcare centre in Bargara in Queensland, medical rooms in Ararat in western Victoria, a Dan Murphy’s in Queanbeyan, NSW and a Bunnings warehouse in Swan Hill, on the Murray River in Victoria. The properties sold from $1.4 million to $11.3 million, with yields of up to 6.9%.

The standout result was the Bunnings store, which was sold to retired Adelaide doctor Prabhash Goel for $10.9 million, with a yield of 5.11%.

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Burgess Rawson director Shaun Venables says the auction, which achieved an 85% clearance rate, showed how keen investors were to get their hands on premises backed by blue chip leases.

He says many metropolitan-focused investors, including offshore buyers, are looking to regional areas for better yields and affordability.

“Melbourne and Sydney metropolitan markets still offer great opportunities, but for many geared investors, they can increase their options by also looking to regional markets,’’ he says.

For many investors, affordability is the issue not yield.

‘‘The gap between prime metro and prime regional yields is certainly closing in the current market, but for many investors, affordability is the issue not yield, and regional markets offer good opportunities to secure national tenants and prime locations without the price tag of the big cities,” Venables says.

Echuca First National Charles L. King director Troy O’Brien says the Echuca office block, with frontage on one of the small town’s main streets, was purchased by a Sydney-based investor, sight-unseen, for $3.2 million, with a yield of 6.57%, after strong competition from several other bidders.

The result was “well beyond the reserve”, but not unprecedented in the tourist town.

“It was certainly a fantastic result and proof that investors, who are looking for somewhere to park their money, are looking to regional areas. When you’re looking at 4.8% to 5% yield, a 6% figure in the country is very appealing,” O’Brien says.

Also sold in the auction was a digital billboard overlooking Melbourne’s Flinders St, which went for $3 million to a Melbourne investor. Its rental yield is an impressive 11.7%.