Non-Core Assets Achieve Tight Yields Despite Tougher Lending Criteria

10 July, 2017 / Michael Ajaka

Non-Core Assets Achieve Tight Yields Despite Tougher Lending Criteria

‘Non-core’ commercial investment assets in NSW continue to achieve tight yields despite tougher lending criteria and banks lifting their interest rates out of cycle from the Reserve Bank of Australia (RBA), according to research by Ray White Commercial.

Ray White Commercial Head of Research, Vanessa Rader, said service stations, fast food outlets, standalone supermarkets and bank branches offer long term leases to multinational brands, providing confidence to private investors regardless of geographic location.

“Low interest rates have further driven this investment sector resulting in high turnover levels particularly over the past three years,” Vanessa Rader said in the Between the Lines – NSW Commercial Investments June 2017 report.

“Interest rate increases by banks independent of the RBA, together with tighter regulatory lending for some assets such as service stations has made the investment into these asset classes more challenging. However, it has not dampened the tight yields which have been achieved.”

Ray White Commercial NSW Director, Michael Ajaka, said the total 2016 sales of $427.523 million outstripped the highs which were achieved in the previous two years, while in the first five months of 2017 there have been 35 investment transactions worth $125.283 million.

“While demand has been strong across both regional and metropolitan assets, it is clear this growing investor pool has put downward pressure on the average yield achieved,” he said.

Michael Ajaka said while the “set and forget” attraction of non-core assets remains high, more investors will be seeking the optimum conditions around the lease covenant with regards to the payment of outgoings, refurbishment and remediation where necessary.

“These assets which feature this will continue to see some yield tightening while other more secondary assets may not see the same results,” he said.

“Demand, however, will continue for all properties with significant lease length in the sub $2.5million price bracket.

“These assets have a much larger investor base and will outperform similar larger assets during the remainder of 2017.”