Smaller commercial properties seeing SMSF demand

Smaller commercial properties are in demand from private investors looking for yield in the low interest rate environment.

Properties in the $1 million to $5 million price range are particularly sought after by self-managed superannuation funds, said Dean Venturato, director of Burgess Rawson, which specialises in selling commercial properties to investors.

“In the last 18 months there has been more activity from SMSFs and there’s more awareness of [commercial property]. There are more people getting advice from accountants and financial planners to [invest in] it,” Venturato said.

He estimates that as many as half of buyers of smaller commercial properties are investing through superannuation funds. These buyers favour lower risk properties.

“The better the tenant, the longer the lease, the better the location, the more interest we get,” he said.

There could be two to three times more enquiries and inspections on properties in prime locations with good tenants on long leases, even though these properties tended to deliver lower yields.

The markets in Sydney, Melbourne and Brisbane were seeing equally strong demand from investors.

In Melbourne, strip retail premises in prime locations delivered yields of around 4 to 5%. “That’s a reflection of the popularity of those areas,” Venturato said.

Strip retail in Sydney’s better locations such as Randwick, Newtown and Balmain could yield around 5 to 5.5%, Ventuarto said. In lesser retail areas in Western Sydney, yields could be up to 8%, depending on the tenant and the length of the lease.

Supermarkets leased to national tenants might offer yields of 6 to 6.5%.

Service stations and 7-11s sold under sale-and-lease-back arrangements were delivering yields of around 7.5%, or 6.5% for properties in prime spots.

For service stations in regional areas, investors could expect yields around 0.5% above those in metropolitan areas. “For 7.5% yield in Sydney, it might be 8% in Scone and Muswellbrook,” Venturato said.

Industrial buildings offered slightly higher returns. A modern, prefabricated concrete building with a secure tenant might deliver 7.5% yield, while an industrial shed might return around 9%.

High auction clearance rates of around 90% for smaller commercial properties have boosted vendor confidence and seen more properties come onto the market in the past four to six months, Venturato said.