Understanding commercial market fundamentals: David O’Callaghan

GUEST OBSERVER

Market activity in commercial and industrial real estate can be assessed under two types of market interest.

Owner-occupiers are strong at the affordable end of the market as business operators well understand that it is preferable to own rather than rent the properties they use or need for their businesses.

For many business owners it is much more effective to own rather than rent their premises, especially with the prevailing low interest rates.

It is also quite common to see the property purchased at auction held in the name of a superannuation fund where it is leased back to the operating business at often for an attractive return.

The second strong area of interest is from investors with self managed superannuation funds.

For a lot of SMSF investors a commercial property provides a diversification and they are regularly being advised by their accountants or specialist advisers to acquire a commercial investment.

Certainly the return is usually better than a residential investment because a commercial property that is well and securely leased provides a more reliable income stream than almost any other type of property investment.

I always say that in investing in any type of property the purchaser needs to know and understand the key market fundamentals.

This includes factors like market liquidity, add on costs like State Land Tax and the transaction costs of stamp duties, legals, agency or management fees and transaction costs as both a buyer and as a potential seller.

Often my engagement may involve trying to right the wrongs caused by poor leasing advice and structure to rectify a property’s optimum lease structure.

For instance, I am currently appointed by the Melbourne Theosophical Society to manage the proposed sale of their long held historic building at 126-128 Russell Street.

A landmark four level building in part occupied by the Society it has multiple tenancies and is currently generating an annual rental income of around $350,000.

My expectation is that 126-128 Russell Street will be offered to the market before the end of the current financial year and given the shortage of key CBD freeholds on offer it is likely to be keenly bid.

David O’Callaghan is the managing director of O’Callaghan Commercial and can be contacted here.