Mackay office building sells on whopping 15% yield

The Queensland Government leases 100% of the space at 22-30 Wood St, Mackay.
The Queensland Government leases 100% of the space at 22-30 Wood St, Mackay.

In the current piping hot commercial property market, yields of below 5% are often standard fare for investors as prices continue to climb.

Conversely, yields above 10% have been almost unheard of in recent years.

So the pre-Christmas sale of a Queensland Government-tenanted office building at Mackay in Queensland is a clear and present outlier, with its $3.5 million sale price representing a yield of more than 15%.

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Currently leased to the Department of Natural Resources and Mines, Department of Housing and Public Works and Department of Environment and Heritage Protection, the building at 22-30 Wood St traded on an initial passing yield of 15.08%, with its current annual income listed at around $598,000.

The buyer was the acquisitive Sentinel Property Group, which will add the 2031sqm building to its Sentinel Mackay Office Trust, which also includes “The HUB @ Greenfields” in Mount Pleasant, Mackay.

The Mackay property has more than 2000sqm of floorspace.

The regional location and short lease period were likely contributing factors to the large yield, with the lease believed to expire in 2020, though there are options to extend.

Sentinel Managing Director Warren Ebert says the property represented great value.

“The purchase price equates to approximately $1725 per square metre of NLA, which is considered below building replacement cost, while the initial passing yield is well above yields of comparable assets,” he says.

“The property is located within the Mackay CBD, with good exposure to Wood St, and the building has a 5-star NABERS energy rating, which is typically a requirement of government tenants. The property also provides 45 exclusive use car parks.”