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Rising rates shine spotlight on major regional centres cont'd....
Over the next six weeks most borrowers will feel the effect of the RBA’s decision to raise official interest rates to 6% per cent last month. For a large number of borrowers their quarterly rollovers will reflect new lending rates in the 7.25% - 7.50% range, equating to the current passing yield of many commercial properties.
The squeezing of passing cashflow between rental yields and interest costs has renewed investor focus in major regional centres such as Wollongong, Newcastle, Lismore, Byron / Tweed, Dubbo, Ballarat, Toowoomba and Queensland’s Sunshine Coast. Yields for quality commercial property with solid lease covenants to local business are being traded in the 9% -10.5% range.
Strong regional economies underpinned by high employment, regional university and higher education campuses and improved accessibility through new discount airlines and transport links are leading to population shift. Year on year returns on quality assets are improving at a faster rate than some of the more established or saturated Sydney and Melbourne locations.
Macquarie Leisure Trust has been active in developing and acquiring assets in these locations including suburban mini malls comprising an independent grocery retailer, specialty chemist, news agency, bakery and fruiterer.
The majority of national marquee brands have a presence in these regional centres - albeit their preference is to be located in the larger regional shopping centres owned by institutions (think Centro). Notwithstanding this, growing volumes of commercial properties in regional areas are being traded with national tenants in situ.
*Metfund acknowledges source material published by The Australian.
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