The great yield divide between capital city and regional markets is putting Gold Coast commercial property firmly in the box seat for another big year in 2019.
Ray White Commercial’s analysis of property transactions in 2018 reveal a significant gap in returns between Gold Coast commercial assets and those of Sydney, Melbourne and Brisbane.
Ray White Commercial Gold Coast director Greg Bell says this gap is positioning the Gold Coast as a new value destination for private capital, leading to a spike in inquiries for industrial, retail and office assets in the past year.
“Rising demand has put some pressure on Gold Coast commercial property yields this year, but the numbers are still staking up well for investors looking for opportunities on the Coast,” said Mr Bell.
“Prices have firmed, but so have rents in some areas which has stabilised yields, and that continues to give the Gold Coast an edge for investors seeking strong returns.
“In some sectors, the commercial returns at the bottom end of our market are well above the top returns available in Sydney or Melbourne.
“The gap has widened to such an extent that the Gold Coast, with an economy that continues to hold up well in the wake of the Commonwealth Games, is firming as a credible alternative to these markets.”
Research conducted by Ray White Commercial shows that industrial property sales in key markets such as Melbourne’s south-east and Sydney’s central west were struck on yields of between 5 per cent and 7 per cent. This compares with Gold Coast yields of between 6.25 per cent and 8.5 per cent.
As for retail, Mr Bell said sales in 2018 revealed a new dynamic that has split the Gold Coast market between the north and south where private wealth has been scouring for opportunities.
“Northern Gold Coast retail, where residential development has been strong in recent years, has delivered a host of new centres that incorporate food and dining with essential services such as medical and general commercial,” Mr Bell said.
“These properties have been generally well accepted by the market and maintain good occupancy rates.
“But there’s a different dynamic on the southern Gold Coast where retail is dominated by cafes, restaurants and bars.
“That’s a sign of the denser population centres closer to the beach and the emergence of the café culture to serve this population.
“There’s been solid interest in freehold premises in southern beachside retail precincts from high-net-worth investors.
“Often these properties have upside potential in terms of rental returns as well as redevelopment potential, so many investors are taking a longer-term view of these assets.”
Ray White Commercial data show most Gold Coast retail assets sold in 2018 were on average yields between 6 per cent and 8.25 per cent.
Demand for smaller retail properties from private investors and self-managed super funds has seen yields on these properties compressed to between 5.5 per cent and 6.5 per cent.
“That’s still quite attractive from a national perspective because, in some parts of the country, many prime retail strips and smaller convenience-based centres are changing hands on yields below 5 per cent,” Mr Bell said.
The Ray White research shows prime retail strips in Melbourne have traded at yields of just above 2 per cent, while in Parramatta, Sydney they have been as low as 2.5 per cent.
Among the biggest retail deals on the Gold Coast this year has been the $31.88 million sale of Miami One on a yield of 6.4 per cent.
“The significant yield differential on prime assets has led to a higher inquiry rate on the Gold Coast, especially now that the city is showing some staying power in terms of population growth, and private and public infrastructure spending,” Mr Bell said.
“The Gold Coast has always been an aspirational market for investors, but now the economic numbers are stacking up in our favour as well.”
The strength of the Gold Coast economy is reflected in the office sector where demand by the professional services sector has increased sharply.
“This rise in leasing demand has coupled with limited new supply of office stock to a steady increase in rental rates,” Mr Bell said.
“Leasing inquiries and new deals have been dominated by the likes of law firms, accountants, financial advisors and the government sector over the past couple of years.
“We’re also seeing a general expansion of many existing businesses looking for more space.”
Consistent demand has kept yields from most office sales within a range of between 6.25 per cent and 7.5 per cent.
Tightening CBD yields in both Sydney and Melbourne this year have seen them edge below 5 per cent, while Brisbane yields also remain under pressure, bottoming at just above 5 per cent this year.