With the current focus on the residential property market, I thought I’d share some information on the commercial property market kindly supplied by my friend Marc Carbone (CRS Property):
Melbourne Property Market Snapshot – 2019
- Chinese invested $35 billion in commercial property in Australia last year;
- Decade low vacancy rates for Office and Industrial markets;
- Office sector accounted for 52% of the total number of portfolio transactions in Australia.
Melbourne Office Market
- First time in ten years CBD office market records decline in vacancy rates;
- Vacancy rates are predicted to decline for 2019;
- Yields at historical lows and are predicted to compress.
Melbourne Industrial Market
- Best performing asset class;
- Growing e-commerce presence, investor and tenant demand alike for industrial properties remains undiminished;
- Major infrastructure spending is the driver of demand for industrial and logistics developments – Metro Tunnel, Airport Rail Link;
- Industrial yields are averaging between 5.79% pa – 6.33% pa;
- Rental rates on average for industrial $70 – $100 per m2;
- Next twelve months will see an increase in development from larger institutions namely Fisherman’s Bend and Arden precincts.
Melbourne Retail Market
- Challenging retail trade across the board;
- Rental growth is expected to remain quiet;
- Yields for retail are expected to rise as investor interest eases.
Data sourced from Urban Property Australia.
Commercial Property Lending
Despite the current credit environment, commercial property lending continues to enjoy a reasonable appetite from many lenders (owner-occupied & investment alike).
Whilst Loan to Value Ratios (LVR) can vary, the LVR on standard commercial property (whether office, industrial or retail) ranges between 65% – 80% (dependent on lender and credit criteria).
However, there are scenarios in which the LVR can be substantially reduced, such as (but not limited to):
- Specifically built buildings that cannot be readily utilised for any another purpose, e.g. an abattoir or reception centre;
- Properties with potential environmental issues, e.g. a petrol station or a factory producing chemicals;
- A property which the valuer deems its “highest and best use” as a property development site, in which case it may be deemed a “Land Bank”.
Some questions to ask when purchasing a commercial property that you would like to finance:
- Is it a standard property i.e. can it be used for any type of business / tenant?;
- How long is left on the lease (if purchasing tenanted)? – This is important as commercial property values are largely determined by the lease that is in place (unless being sold as “Vacant Possession”). If there is no lease in place you may also be liable to pay GST on the purchase price;
- Is there an Environment Protection Authority (EPA) report (in the case of potentially contaminated sites)? – This is important because in some cases, you may become liable for the remediation of any contamination issues and this can cost in the hundreds of thousands of dollars and could potentially take years to fully remediate the site.
If in doubt, ask your agent, solicitor and accountant to clarify the details. And when the time comes to borrow, give us a call so that we can structure the most appropriate commercial finance solution from a flexible and reasonable lender. Commercial finance can be tricky, but we can help you take the guess work out of it.
WE ARE HERE TO HELP. So feel free to reach out if you would like to discuss any aspect of the above in greater detail or would like us to help you in preparing your commercial loan application.
Disclaimer: The information provided herein is for general information purposes only and does not constitute specific advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. Specific advice should be obtained from a suitably qualified professional before adopting any investment/financial strategy.