Q&A with Raoul Holderhead
There’s something about single-tenanted commercial properties.
While commercial assets as a whole continue to grow in popularity among investors, it’s the simplicity of single-tenanted properties that consistently see the most significant interest and demand.
Burgess Rawson Director Raoul Holderhead explains why.
Q. Why are single-tenanted assets so highly sought after?
A. “It’s the simplicity of owning a single-tenanted property, whether strata or freehold, in comparison to other assets, that entices private investors. A single-tenanted property means they don’t need to worry about as many moving parts as they do for a property with multiple tenants.
You don’t have the challenges that come with managing numerous small tenants in addition to the larger anchor tenant, such as in shopping centres. Funnily enough, it’s usually the large tenant in these properties that proves easy to manage, while tenants who might return 30% or less income take up most of your time. These investments still have a following, however they are best suited to those with relevant experience or a capable managing agent to look after the asset.
The current market reflects this preference for single-tenanted properties, and they are also a favourite with new entrants to the commercial property market. If you compare yields of freestanding supermarkets versus shopping centres, or single-tenanted service station versus larger fuel stops with additional tenants, investors are prepared to pay a premium to secure a single-tenanted property.”
Q. Which single tenanted assets are in most demand?
A. “Based on the level of enquiry generated by recent campaigns, national-tenanted properties are in investors’ sights.
We recently closed a campaign for a major asset in Tuggerah, NSW. What struck us was that while we anticipated heavy interest from fund managers and syndicates, it was the level of enquiry from private investors that surprised us. Single-tenanted assets, in freehold or strata with favourable tenants are very popular among private buyers, and we see this continuing into 2020.
Traditionally popular properties such as Bunnings will remain in demand, and I expect yields to compress even further. Yields sharpened throughout 2019, with capitalisation rates coming in by around half a percent, and the potential to reduce further in the coming year.
Finally, fast food assets leased to big-name brands have experienced a low level of supply, and this points to the potential for more of these assets to become available in 2020.”
Q. What advice do you have for investors?
A. “Investors are constantly asking when’s the best time to buy commercial properties, and the simple answer in the current market is ‘as soon as possible’. These properties are only going to become more popular in Australia as personal and collective wealth increases and investors look for safe, long-term strategies for their money.
The depth of enquiry we’re receiving on everything from freestanding Woolworths, Coles and Bunnings, down to smaller, entry-level properties such as the IGA located at Burpengary, are going to become more desirable, and my advice to buyers is that if you’re focused on only a particular type of property, pull the trigger because the opportunity might not come around again.”