The assumption that commercial property and high yields always go hand in hand has just been turned on its head.
Last week, a 14,030m2 showroom/warehouse with development upside, sold with an investment yield sub 3.5% in what has claimed to be one of Melbourne’s most fiercely contested campaigns.
Investors just can’t seem to get enough. According to market research, vacancy rates for the industrial/commercial sector are at their lowest in a decade and in addition, we have seen the number of industrial properties exchanged sit around 60% above the first quarter trend of the last two years. In the case of Blackburn road, the discerning purchaser has proven that a lower yield in the short term was worth accepting in lieu of every other perfect attribute this investment held; a stable income, premium tenant, development upside and huge corner block in a prime location.
The corner landholding which generated global interest, is located in the tightly held industrial precinct on Blackburn Rd. Clayton with A-grade tenant Fowles Auctions further enhancing its appeal. The asset was sold by Gross Waddell ICR's Danny Clark, Andrew Waddell, Tony Aarons and Glenn Ye.
Mr. Clark noted that the campaign generated over 42 individual buyer inspections, 190 enquiries and 28 initial expressions of interest, with a 2nd round tender seeing the property sold to one of the many unconditional bids.
"The property was purchased by an astute investor who proposes to hold the investment whilst the lease remains for the next 6 years and then proposes to capitalise on the scale of the corner landholding and develop it out” he stated.
Whilst the price was undisclosed, the sales price, which was well over the initial quote range, and low yield, was a reflection of the market's soaring demand for showrooms or industrial investments with underlying land value.
Mr Ye commented “…we experienced extremely high levels of enquiry from offshore investors and local Chinese families, with the eventual purchaser having offshore connections but an established track record within Melbourne.”
Over the past 6-12 months, the City of Monash has seen multiple industrial freeholds sell with yields ranging from 4%-5%, this one however achieving well below at sub 3.5%. Mr. Waddell noted that buyers are clearly indicating their willingness to sit on land over time with holding income, whilst preparing for further development.
Despite rising construction costs and the Australian inflation rate surge in Q1 from 3.5% to 5.1%, it appears that most investors in this sector still remain bullish. And why wouldn't they? Safe-haven markets such as Australia are still being targeted from across the globe with the share of cross border investment rising from 46% in 2021 to 67% in Q1 2022¹. This, together with other factors such as the demand for household goods and essential items still remaining reasonably high, is expected to support the demand for industrial space moving forward.
