Affordable regional commercial markets attracting first-time commercial investors

JULY 15, 2021

Major regional commercial property markets around Australia such as Wagga Wagga, Port Macquarie and Mackay are proving very attractive for business owners, and investors, particularly first-timers, as the economies in these regional towns continue their post-COVID recovery.

Mr Angus Raine, Executive Chairman of Raine & Horne Group, advises that for those new to commercial property investing, a regional growth centre can offer cost benefits such as lower entry costs than city markets and higher yields as high as 7-8%.

“But before you invest in a regional commercial real estate market, be sure it’s not a one-trick economic pony, and that local jobs and growth are dependent on multiple sectors. So, if one part of the economy falters, there are other sectors whether it’s agriculture, education, health or retail that can help underpin demand for commercial property.” Mr Raine says. 

For those investing for the first time, Mr Raine stresses the importance of doing your research and due diligence. “Look carefully at the location and demographics of the area you are considering. Consider the vacancy risk carefully. Check the length of the lease terms for the current lessee and whether there is an option to renew.”  

Commercial affordability is attracting some first-timers to Port Macquarie

The market in the North Coast regional city remains buoyant, and as Mr Graeme Garrett Director of Commercial Port Macquarie observes, “There is a lot of capital looking to find a home in commercial property, especially from Sydney, Newcastle searching around for better value in a regional market.

“First-time commercial investors are definitely part of the buying mix, and why not given the entry-level commercial market in Port Macquarie starts from $300,000 for a small strata,” says Mr Garrett.

As an indicator of the health of the North Coast market, Shop 1A/128 William Street in the Galleria Building in Port Macquarie, recently sold for $290,000. “How often can you buy something with a “2” in front of it and our market offers opportunities for investors to whet their commercial property appetite,” said Mr Garrett.

That said, right across all price ranges, there is a shortage of commercial property for sale in Port Macquarie and this is also squeezing the leasing market, Mr Garrett notes.

“Stock of all levels and grades is generating good interest from both investors and owner occupiers.

“This is leading to very low vacancy rates, ranging from as little as 2% on industrial assets to as low as 3% for retail and office properties.”

Local owner-occupiers and investors must contend with overseas money in Wagga Wagga

Mr Craig Tait, Director of Raine & Horne Commercial Wagga Wagga, says the regional city’s affordability compared to Sydney and Melbourne is attracting investors to commercial real estate in the locality.

“In Wagga, the average commercial property starts at around $700,000, although there are some small warehouses being marketed for as little as $220,000,” Mr Tait says.

“The commercial market across the region has been very robust during the post-COVID recovery, and for this reason, we don’t have a lot of entry-level investment stock.”

Owner-occupiers and Australian investors must now contend with international investors who have discovered the major inland city. Mr Tait clarifies, “These investors have local representatives who have identified our market as being less affected by lockdowns, and consequently, investment properties are selling like hotcakes.

He adds, “Yields have reduced, and sales stock levels are very low, putting upward pressure on prices. Commercial leases are still strong, backed by good demand for retail and industrial property. We anticipate this trend to continue as the local economy is in a real growth phase.”

In the retail market, Mr Tait says, “We have seen a movement away from the large shopping malls back to the main street, and retail growth has been impressive, with some big city tenants relocating their businesses.”

Mr Tait explains, in terms of the industrial market, “Small business has expanded in many areas, taking up space that has previously been difficult to lease. We have several large national groups taking up space as they are anticipating further growth in the region.”

The positive outlook continues for the Wagga office market. “The $431 million redevelopment of the Wagga Wagga Base Hospital has attracted more NDIS providers to our market, with several new businesses opening up. “We have also seen an expansion in the financial sector, allowing smaller operators to grow their businesses and take up additional space.” 

Industrial is the star of the show in Mackay

Mr Des Besanko, Managing Director of Raine & Horne Commercial Mackay reports yields on industrial property of 8-8.5%, and 9-10% on office space. Current vacancy rates are around 5% for retail assets, rising to 20% for office space. However, industrial property is a strong performer with a vacancy rate of just 2%.

According to Mr Besanko, the pandemic has not generally impacted retail or industrial property in Mackay, and there has been minimal impact on office space beyond mandated work from home rules during lockdowns.

As a guide to the strength of the market, Raine & Horne Commercial Mackay recently sold 33 Michelmore St, Paget, an industrial shed on a casual tenancy with Hastings Deering. The property sold for $5.4 million with vacant possession. The buyer coordinated $250,000 in upgrades, to achieve an internal lease of $500,000pa plus GST.