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Affordable regional markets are attracting first-time commercial investors

Raine & Horne has found regional commercial property markets around Australia are very attractive for business owners and investors, particularly for first-timers.

Regional towns like Wagga Wagga, Port Macquarie and Mackay are experiencing very strong economies, primarily due to their COVID-19 recovery efforts.

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

“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,” Mr Raine said.

“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.”

For those investing for the first time, Mr Raine stressed 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,” he said. 

Commercial affordability is attracting first-timers to Port Macquarie

Director of Commercial Port Macquarie Graeme Garrett has observed the market in the North Coast regional city and said it remains bouyant.

“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,” Mr Garrett said.

“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?”

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 noted.

“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 per cent on industrial assets to as low as 3 per cent for retail and office properties.”

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

Raine & Horne Commercial Wagga Wagga director Craig Tait 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 said.

“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 clarified that “these investors have local representatives who have identified our market as being less affected by lockdowns, and consequently, investment properties are selling like hotcakes”.

“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,” he said.

In retail, Mr Tait has seen movement away from large shopping malls and back to the main street.

“Retail growth has been impressive, with some big city tenants relocating their businesses,” he said.

Mr Tait explained small businesses are expanding in the industrial market.

“[They are] 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,” he said.

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,” he said.

“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

Raine & Horne Commercial Mackay managing director Des Besanko reported yields on industrial property of 8-8.5 per cent, and 9-10 per cent on office space.

Current vacancy rates are around 5 per cent for retail assets, rising to 20 per cent for office space. However, industrial property is a strong performer with a vacancy rate of just 2 per cent.

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.

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