East coast buyers see value in Perth commercial property

Just over 45 per cent of the building was vacant with a weighted average lease expiry (WALE) of one year.

Mr Dear said its vicinity to the new Kitchener Park High School played a key role in the competitive sale.

“The sale indicates east coast buyers are looking for value in Perth,” Mr Dear said.

“We have recently sold retail and office assets to Melbourne-based investors ranging from $5 to $32 million. We are experiencing interest across all asset classes with the most aggressive capital chasing properties with long WALEs, as purchasers look to ride out Perth’s soft leasing market.”

125 Murray Street, Perth, is an example of a vacant property with potential to add value through a refurbishment or conversion. Photo: Supplied

Colliers International investment services director Ian Mickle said Perth’s office market was already a hot spot for investors from the east coast and Asia.

“For the most part these investors are looking for leased buildings with passive long-term WALEs and because there’s a limited supply of these assets, competition is strong when they do come to market,” he said.

“We are also seeing funds and investors that are looking for office assets with vacancy risk that also offer upside opportunities through capital refurbishments.

“There has been four value-add sales in Perth in recent months and all these buildings had significant vacancies and were in need of capital expenditure.”

These included the former Reserve Bank building at 45 St Georges Terrace, which sold for $53.31 million, 55 St Georges Terrace, which sold for $45 million and the $25 million sale of 182 St Georges Terrace.

Real Estate Institute of Western Australia deputy president Damian Collins said increased interest from buyers over east in all commercial sectors was due to the belief the Perth market was in the bottom of its economic cycle.

He said bigger investment funds were targeting office space due to the vacancy rate dropping to 20 per cent or thereabouts.

According to REIWA data, there were 287 office sales in Perth during the year to December 2017 – a 13.4 per cent increase on the previous year.

Twenty eight per cent of sales took place in the $500,000 to $750,000 market, while 17 per cent of sales were in the $1 million to $1.5 million sales bracket.

Sub-$3 million industrial property market on fire

In the industrial sector, strong competition between institutional buyers from the eastern states and overseas, and WA-based syndicators and high-net-worth operators to purchase Perth industrial assets that will be held on a long-term basis in investment portfolios was consistent, according to Colliers International.

“At the institutional level, REITS, investment and superannuation funds tend to focus on industrial assets on the east coast but with a growing pool of retirement savings to invest, they keep a close eye on opportunities in WA’s industrial property market,” Colliers International industrial agency associate director Greg O’Meara said.

“Assets with long WALEs and strong leasing covenants are always the most fiercely contested, but there is also an active cohort of value-add operators who are looking for suitable properties to reposition.”

Mr O’Meara said the next WA asset to test the investment market, including the appetite from east coast institutions for industrial property, will be Coca-Cola Amatil’s sale and lease back of half of its 8.35-hectare site in Kewdale.

The transaction – negotiated by Colliers International – will include the sale of the soft-drink company’s 24,000-square-metre manufacturing and bottling facility and an agreement to lease back the property for 15 years.

According to Colliers International, Welshpool and Kewdale are the centrepieces of Perth’s industrial market and Canning Vale and Malaga are increasingly being recognised for their strong warehousing facilities. Kwinana and Henderson cater for more specific market segments including marine, oil and gas, resources and agribusinesses.

Raine & Horne Commercial WA director Anthony Vulinovich said there had been broad investor interest, from small self-managed super funds looking at property worth less than $2 million, to larger trusts looking at significant large assets and portfolios.