Syndicates looking towards commercial

Syndicates looking towards commercial

Current conditions in real estate are presenting commercial property as a viable (and in some instances preferable) alternative to residential property for many investors. Particularly in the Sydney market, where we have seen significant growth within the residential market - prices are now extremely high whilst yields are lagging behind. Consequently we are seeing more and more investors looking to tap into the higher yielding environment traditionally offered by commercial and retail property. 

In order to gain entry into this commercial space (with ticket prices often around the $2-$3 million range) we are noticing a proliferation in consortium investment. Groups of individuals - generally families of up to ten members are joining together to purchase properties in strategically located pockets across Sydney. By pooling their resources, these groups are able to make purchases in well serviced transport precincts within 20km of the city.

Changes to zoning regulations, from medium to high density (up to 28 meters) for areas in close proximity to key infrastructure hubs is giving increased scope to value add to commercial properties upon purchase. In some cases residential dwellings can be split off or built out, from the existing commercial premise - therefore the remaining commercial property can be used for subsequent leasing or in turn sold if need be. This drastically pays down any debt on the original purchase and leaves a generally high yielding commercial or retail tenancy.

Ultimately, the feasibility of this type of syndicate investment is being realised due to the banks loosening their lending requirements on retail, industrial and commercial property. The types of individuals embarking in these types of transactions are not first time investors and are able to access commercial terms via low loan to value ratios. As such, commercial lenders are open for business to these buying syndicates.  

So in the current economic climate, when the Sydney residential market has come off the boil, investors are showing more confidence in retail and commercial properties. I expect the increased interest in commercial property to continue. With lender’s opening up the doors in recent times in relation to commercial loans - sophisticated investors are thinking outside the square in order to benefit from the better returns.

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