Smaller commercial assets on the Sunshine Coast are holding their own despite the current economic uncertainty and rising interest rates. Offices, retail and industrial assets in the sub $2 million price bracket remain in hot demand for investors, owner occupiers and Self Managed Super Funds.
National figures indicate more than $12 billion in sales of sub $2 million commercial property during the 2021-22 financial year. That’s a 2.3% increase in total sales value. Almost 20% of those sales were recorded in Queensland.
On the Sunshine Coast, small commercial properties remain in favour as people shore up their financial positions. Sought after locations for high quality smaller commercial assets include the typical higher profile locations but also railway towns such as Cooroy and Yandina are showing exceptional demand from both investors and tenants .
Ray White Commercial Noosa & Sunshine Coast North agent, Chantel Dielwart said enquiry about sub $2million commercial properties remained consistent from both local and interstate buyers.
“Many people are cashed up and ready to purchase smaller premium assets, drawing on other property portfolios, super accounts, or selling off old assets and re-establishing new ones,” Chantel said.
The strong turnover levels recorded over the last few years for the sub $2 million segment can be largely attributed to availability of finance and low interest rates. However, as market conditions change, what will be the outlook for this smaller end of the market on the Sunshine Coast?
Investors are always looking for “set and forget” assets with long term tenants and secure income streams. While yields may see some adjustments, we expect these assets will remain attractive to private investors.
Tenanted investments remain “the pick of the litter” on the Sunshine Coast, according to Chantel Dielwart, citing the recent sale of a 278 sqm retail showroom at 2/5 Gibson Road Noosaville for $1.925 million as an example. The property, which sold at a sub 4% return, is in a tightly held area where there’s no possibility to build more commercial property, cementing its attractiveness to prospective tenants.
Agent Tracey Ryan says such opportunities are hard to come by as many people are currently sitting tight on tenanted investments due to uncertainty around stock markets, inflation and interest rates.
“Why sell when you are getting returns above bank deposits and more guarantees than in the stock market?” Tracey says. “However, this may start to change if vacancy rates become higher.”
As the market changes, buyers will more carefully consider location, quality of lease covenants, potential for long term national tenants and terms such as rent reviews.
In such a dynamic market, owners must weigh up contracting a fixed 3% rent review rate or roll the dice on CPI which rose 6.1% over the twelve months to the June 2022 quarter.
A lack of industrial land on the Sunshine Coast continues to ensure industrial property remains head and shoulders above all other commercial property types, with anything new “disappearing in a heartbeat” according to agent Tallon Pamenter.
“We are still seeing industrial owner-occupiers prepared to pay more than investors as businesses are assessing what profit they can make in that space as opposed to an investor looking for a return,” Tallon said.
“The other thing pushing a strong holding price and increased values is there is no significant available industrial land anywhere on the coast. There are no large new industrial parks or land being rezoned and the new Sunshine Coast Council town plan is approximately another 2 years away, so factoring in civil works, development approval and construction, it could be years before any significant levels of stock flood into the market”.
The Sunshine Coast is home to more than 33,000 small businesses and with rising commercial rents, many small businesses are considering the advantages of purchasing their own premises.
For example, agent Tracey Ryan recently achieved the sale of 2/7-13 Beach Road Coolum, a 69 sqm retail shop, for $492,000 to a small business owner occupier.
With vacancies remaining historically low, owner occupiers will continue to actively compete for assets to give their businesses accommodation certainty. The only possible dampener is if continued high inflation causes a significant downturn.
A large increase of first timers made their foray into commercial real estate over the past few years, seeking out higher returning assets than residential.
There is some uncertainty over exactly where interest rates will go and a small level of concern that people may overextend themselves and return properties to market. However, there is no evidence of this in the Sunshine Coast commercial market.
“While commercial property tends to be 6-12 months behind residential, there is a sentiment that the Sunshine Coast is in a bubble of sorts,” says Tallon. “The region is a desirable place to live, work and do business which should prop things up a bit and provide some resilience against market influences.”
Over the last few years, medical assets have grown in popularity as both investors and owner occupiers capitalise on the increasing population. This is even more evident on the Sunshine Coast where significant investment in major hospital and medical facilities has positioned the region as an attractive location for health and allied health investment.
“Medical businesses, particularly those relocating or expanding from interstate are paying top prices for securing a premium location,” says Tallon.
“We are seeing strong interest from a full range of medical businesses including psychology, allied health, general practitioners and specialists such as heart specialists, especially in and around the medical precincts in Birtinya, Buderim and Noosa.”
The team at Ray White Commercial Noosa & Sunshine Coast North recently sold a 107sqm tenanted medical investment at Suite 15/37 The Esplanade Maroochydore for $1 million to a local dentist who had been leasing the property. A substantial 445m² medical premises at 23 Elsa Wilson Drive in the Buderim Private Hospital precinct was sold for $1,075,000 earlier this year to an owner occupier moving to the Sunshine Coast.
Experienced investors will look to capitalise on changing market conditions. Assets which are vacant or could be repositioned will be of interest to investors willing to get their hands dirty albeit at the right price.
“Owners of older buildings with the foresight to add value such as cosmetic improvements and installing an access lift in addition to stairs are likely to attract better quality tenants at a good rate and much higher yield.”
Tallon also suggests that some properties could potentially attract a better price by being sold vacant rather than tenanted.
“Vacant assets offer greater flexibility to prospective new owner occupiers who are able to customise fitouts that generate returns by adding profit to an already profitable business,” he said.
For a chat about the current commercial market or for any enquiries, contact our team on +617 5474 7600.
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By The Ray White Commercial Noosa & Sunshine Coast North team, with support from Head of Research Vanessa Rader
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