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Sydney metro assets achieving yields of 5.5 per cent

Property Markets / Outlook

Australia / Sydney

Oct 08 2018

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Commercial property investors looking for long-term income security and high returns are turning to Sydney’s regional areas to get more bang for their buck, according to one industry expert.

Savills Australia’s Robert Lowe, a director for the Metropolitan & Regional Sales team, has witnessed metropolitan retail and office properties achieving yields below 5.0 per cent in recent months, as buyers “aggressively” compete for high-performing portfolio assets.

Mr Lowe said yields had been compressing by about 1.5 per cent for retail investments in the sub-$3million price range for the past three years.

“Investors are increasingly looking at properties that are leased to national tenants on long leases, such as banks, service stations and nationally branded retailers,” he said.

A recent sale of a Hungry Jacks in South Grafton achieved a record low yield of 2.2 per cent, while sales of ASX-listed Oliver’s Real Food in Bulahdelah, a Westpac Bank in Gunnedah and a Shell service station in Kurri Kurri have achieved yields of 5.7 per cent, 7.5 per cent and 7.93 per cent respectively. 

“The average yields for well-located retail investments in the Sydney metropolitan area is around the 5.5 per cent mark, plus return, with those leased to national tenants commonly selling for less than 5.0 per cent,” Mr Lowe said.

“Investors continue to be on the hunt for yield; they’re looking for long-term security and higher returns than they can achieve in the cities so they are turning to regional areas.”

Mr Lowe’s observations come on the back of his team’s recent sale of 126 William Street, Bathurst, for $880,000, which reflected a low initial yield of 4.26 per cent net per annum, and a potential 7.67 per cent net per annum on a fully leased basis.

“The William Street sale displayed strong market fundamentals – the property was well located in a popular, high-performing regional town, just one block from the town centre,” he said.

“Bathurst is only a three-hour drive from Sydney, and the area has seen strong economic growth in recent years. Major employment sectors include manufacturing, education and training, retail trade, public administration and construction.

“Investors are scrambling to get a foothold in Bathurst and other regional centres, if they haven’t already.”

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