Why are regional markets attracting investors?

Some of the best opportunities for commercial property investors in NSW can be found in satellite cities outside the Sydney basin.

Lower entry prices and higher yields are proving compelling, but before you invest your money in a regional centre, make sure you understand the dynamics of the local market.

To find out how this market is travelling, I spoke to leading commercial agents in two fast growing NSW towns.

You have to find the right property…

What I heard from both of them was the right strategy involves targeting smaller, well-positioned properties in places with population growth and a robust business environment.

The right strategy involves smaller, well-positioned properties in places with a robust business environment.

In the Hunter Valley, Andrew Cant, Director at Tony Cant Real Estate Maitland tells me: “The market has picked up in 2014 and we’re seeing good enquiries from Sydney and across NSW.”

“Much of that interest comes from small investors, targeting small industrial units or offices through their super funds, and owner occupiers who are renovating shops in the main strip and turning them into offices.”

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… and the right market

I ask him about the pros and cons of investing in Maitland and he says: “We are the fastest growing town in NSW, with good employment prospects around us thanks to mining, which has corrected a little lately, and other business sectors. Being close to Sydney, Port Stephens and Newcastle with few constraints on what you can do with land is definitely a positive.

“The price points in Maitland are lower than Sydney but the yields are higher, usually in the 9%-12% range. The trade-off is you run a bit of a higher risk of longer vacancies.”

The price is lower than Sydney but yields are higher. The trade-off is the risk of longer vacancies.

Next I spoke with Steven Ellery, Commercial Manager at Bathurst Real Estate. He tells me business endured a horrid couple of months following the Federal Budget, but the local area’s strengths – a fast-growing population and plenty of jobs from the government and manufacturing sectors – are drawing significant interest from private investors.

“I had a meeting recently with an agent in Sydney who told me they simply didn’t have enough commercial property to meet demand.”

“Most of the buyers we see coming here are mum and dad investors using their SMSF, but there has also been activity from major super funds and an overseas based bulky goods retailer who wants new outlets in the capitals cites and Bathurst.”

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 Local knowledge is vital for investors

Ellery says investors should take note of local knowledge and current business trends. “Parking in the CBD is at a premium now due to Bathurst’s growth and this is the key to a solid strategy,” he says.

“For instance, a local investor purchased a three-bedroom house one street away from the CBD and I helped him with the rigmarole of rezoning, disabled access and parking. That enabled us to turn a $325,000 property into a half million dollar office complex with four car spaces, and we secured a 10-year lease yielding 13%.”

Investors should take note of local knowledge and current business trends.

In Bathurst, yields are lower than Maitland, generally in the 7% – 10% range across all sectors. Ellery tells me that some larger projects haven’t gone that well, including one developer who appears to have “taken a 10 million bath” on a large retail centre, yet smaller developments, like serviced offices are doing well.

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“We had a new one come onto the market recently and it’s going gangbusters, with lots of start-up owner operators looking to establish a professional presence.”

Both agents confirmed trading conditions for retailers were tough, but opportunities in the smaller office and industrial market were there for the taking if you were well advised on local conditions.