How to find the right commercial asset

Commercial property can largely be divided into four types of assets – office, retail, industrial and media.

According to Mr O’Neill, while CBD-based offices are currently recording high vacancy rates, a comeback is on the cards.

“It will make a comeback, it will, especially when the borders open. A lot of internationals dying to get into Australia, that market is not permanently dead, but a lot of people think it is. So, that’ll come back,” Mr O’Neill said.

Next up is industrial property, which includes manufacturing, storage and logistics.

“So, that’s obviously doing very well with COVID. A lot of businesses like Big W have done record online trades. That all means posting more, storing more, also manufacturing more potentially. So, manufacturing is doing well in Australia, too, since the supply chain store overseas have got slower and weaker.

“So, industrial floor space is more valuable than it ever has been, so that’s why you’re seeing growth in rents, and investors have a more appetite for it as well, which is meaning people will pay more for the exact same product,” Mr O’Neill said.

While Mr O’Neill is bullish about industrial assets, retail remains “very mixed”, he said.

“I actually love retail in the neighborhood shopping center type retail. So, that’s got a real kick since COVID, because people don’t want to go into big air-conditioned malls, they’d rather drive and park in front of the chemist and go in and come out, get their food, go to the supermarket.

“That stuff is doing well, but high-end retail is struggling,” he explained.

But not all neighborhood retail is good retail, Mr O’Neill cautioned.

“Retail needs to have a lot of car spots, needs to be in a very good convenient location, it’s got to have a good mix of retail so you don’t get drawn into that location just for one shop. There’s got to be your anchor tenant, like a supermarket, and that’ll bring people in and then they get their hair cut next door, and then they get their noodle box two doors down. It’s basically a convenience center,” he explained.

As for medical, it is obviously very popular at the moment.

“So, pandemic, medical, people still need to go to the doctor, still need to get their checks done. It’s literally a recession-proof type, isn’t it? And that could include dentists, physiotherapists, GPs, psychologists, all these guys are doing pretty well,” Mr O’Neill said.

Medical does, however, come at a price.

“But it is worth it at the right price, because they’re very sticky tenants,” Mr O’Neill opined.

“They don’t leave quickly, they’re not penile-driven, they’re not going to go, ‘Oh look, the neighbor’s renting for 10 per cent cheaper, I’m going to move my $400,000 fit-out to move next door to pay a little bit less rent.’ That doesn’t happen,” he added.

For more insights into commercial property and how to pick the right asset, tune in to our podcast with Scott O’Neill.

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