Income-Producing Assets Attract SMSF Investors And Retirees, Strata Property A Focus

Posted on 02nd September 2020

Newest Harvest Home Road Epping North 297 319 01
2020 Half Year Outlook - Melbourne Retail Investment

Demand for strata properties has surged over the past 12 months as investors seek income- producing assets, while self-managed super fund investors and retirees have maintained their prominent role in the Melbourne retail property investment market.

According to Fitzroys Director, Chris Kombi, these trends emerged prominently last year and have continued throughout the COVID-19 period.

These have been highlighted by five sales within the Lendlease’s Aurora Village in Epping, at an average yield of 5.4%.

Kombi said the 5% to 5.5% return from a commercial strata titled investment continues to be the difference between retirees earning, for example, $50,000-$55,000 per annum from a one million dollar investment, compared to interest of $10,000 from equivalent funds in a savings account.

“Investors are looking for security. Interest rates have reached an historic low and are broadly expected to remain as such for the foreseeable future. Along with the volatile share market and uncertain economic outlook, this has placed more emphasis on the safe-haven status of bricks and mortar,” he said.

Kombi said that for this reason, SMSF investors and retirees have emerged as a key sub- market seeking Melbourne retail property.

“Over the past 12 months we’ve seen a rush from investors looking to shore up their income stream. Often, it’s been retirees in their 60’s wanting to buy a property that will immediately improve their income, or it’s SMSF investors in their 50’s preparing for their retirement.”

Strata properties fit this criteria well, Kombi said, and have become popular among investors, particularly those with secure leases to quality tenants, and in locations with healthy growth prospects.

“Investors are looking to maximise their returns where possible. They have recognised strata properties typically offer higher yields, as well as a number of tax benefits.

“Strata-titled properties present low land tax liabilities that don’t cut into the return and usually offer attractive depreciation benefits. Furthermore, they are easier to manage with an owners corporation overseeing maintenance, creating an ideal set-and-forget investment.”

He said strata-titled assets offered to the market have come at a range of price points, offering accessibility to the market for a number of investors.

Security Key

Highlighting the emphasis placed on security, are Kombi and Fitzroys colleague Lewis Waddell’s sales within Aurora Village for a combined $4.7 million. Each has a long, secure lease in place with fixed annual rental increases. The properties sold to separate purchasers.

In the latest deals, struck during the Stage 4 lockdown, 303 Harvest Home Road sold with a 10+10-year lease to Harvest Pizza and Pasta, as well as 307 Harvest Home Road with a 5+5-year lease to Aurora Butchers.

They quickly followed the sales of 301 Harvest Home Road, leased to national tenant Bottlemart on an 8+8-year deal; 305 Harvest Home Road, home to eatery Suburban Grill on a 7+7-year lease, and 309 Harvest Home Road, which has a 5+5-year lease to Aurora Groceries.

“As well as the benefits offered by strata-titled property, these are recently-constructed properties that also offered strong tax depreciation benefits,” Kombi said.

The properties are each leased to food and beverage-based tenants that have been able to trade throughout the COVID-19 period, which gave prospective buyers further confidence in their investment credentials.

As a State of Emergency was declared in Victoria, Kombi and Fitzroys’ Ervin Niyaz sold the strata-titled 449 High Street, Northcote property home to popular café Bicycle Thieves for $2 million at a 5% yield, with a long 7+7+7-year lease returning $100,785 per annum.

Other recent Fitzroys strata deals have included:

Shops 19-20, 190 Jells Road, Wheelers Hill - The triple-fronted 210sqm space positioned at the front of Wheelers Hill Shopping Centre sold to a SMSF investor for $2.4 million at a 5.2% yield. It is securely leased to Rokk Ebony Properties Pty Ltd on a 10+5+5- year deal with a solid return of $125,200 per annum.

2-6 Copernicus Crescent, Bundoora - The 245sqm ground floor space within the Polaris Town Centre sold for $2.6 million under at a 5.5% yield. The property has a 5+5-year lease to Cafe Vorea with 4% fixed annual increases.

21 Linden Tree Way, Cranbourne North - An SMSF investor bought the well- presented shop, part of The Avenue Town Centre, for $630,000. Glisten Hair & Beauty has a 5+5-year lease, returning $34,611 plus outgoings and GST with 4% annual increases. This followed the sale of 3 Linden Tree Way for $1.295 million, also to an SMSF investor, at a 6.3% yield with a long 7+7-year lease to grocery business Seven Day Fresh.

138A Rathdowne Street, Carlton - The ground floor corner property sold for $810,000 at 5.9% yield, with a 3+3+3-year lease to Carlton Barbers.

Fitzroys has sold more than $170 million of retail and commercial property across Melbourne since March, when the Victorian Government declared a State of Emergency.