Commercial Property - Auction Clearance Rates in Australia
Clearance rates across the nation are on the rise, bringing new light to a recovering commercial property investment market.
Commercial Property - Auction Clearance Rates in Australia
Auctions are becoming ever more popular across Australia. For the seller (vendor), auctions bring together multiple interested parties, who, in the face of competition, are likely to bid up a property and bring in the highest price. For the buyer, an auction provides immediacy (knowing immediately if your bid is competitive), transparency, (you’ll know who else is interested, and what they’re willing to pay) and the security that you’re not overpaying for that commercial property investment - unless, heaven forbid, you’re the only bidder.
With the recent turnaround in real estate sales prices, auctions are seeing more action than ever and are a clear reflection of the recovering market. If you’re ready to join the fray, Acumen Finance can help you prepare: from advising you on asset classes and putting you in contact with private lenders, to writing your pre-approval letter. Call today to speak with our expert staff of advisors, and tackle the auction mayhem with ease and confidence.
Clearance Rates Update
Auction clearance rates provide a picture of Australia’s recovering economy and rising consumer confidence. The week ending December 14, 2019 (the latest dates for which auction clearance rates were available at the time of this writing), Sydney posted 76% clearance rate, Melbourne 72%, Adelaide 56%, Brisbane 44% and Canberra 61%. A pretty decent performance, all in all.
To put this into perspective, let’s meander briefly into Australia’s clearance rates of years past:
Melbourne clearance rates from November 2016 weekend auctions were still quite bullish, coming in at 78.2% - consumer confidence was still strong. In 2017, the market was still holding pretty steady, but early warnings sign showed some slippage as the clearance rates dropped to just over 70% late that year. By 2018, when the market all-but collapsed, the clearance rates dropped to a meagre 44.6%. And while 2019 started off slowly, it witnessed a steady climb from the beginning of the year to a peak in October, with a barely perceptible correction by November 2019, and landed at 74.3%. Nice recovery, that!
Sydney’s three-year history largely parallels Melbourne’s but showed more sensitivity to the downturn in 2017/2018. Starting in 2016 with a clearance rate of 78.9%, the Sydney auction sales started its downward correction. By 2017 the clearance rates had declined to 64.7% and continued to slide throughout 2018 when it hit the low mark of 44.5% at the end of the year - with only one small hiccup in early December (2018) hinting that the new year would bring new hope. And 2019 was just that - a year of hope for many investors. Starting in February with a clearance rate of just over 47%, the market continually and steadily increased in volume to close November 2019 at 79.4%, with a whopping 80.9% high, hitting in early September.
Elsewhere across the country, Domain reported that Canberra clearances from December 2019 were at 63%, up from 44% for the same time 2018. Adelaide’s December 2019 clearance was a healthy 56%, up from 52% in 2018. Slowly but surely, Brisbane found its course to recovery with end-of-2019 clearance up 11% from the year before to finish at 43%. The Real Estate Institute for South Australia REISA South Australia reported auction clearance rates that started at 15% in January 2019, closed the year at an astonishing 61%.
At Acumen Finance, we believe these numbers illustrate an upward trajectory that will hold fast as we move into the new decade, and we’re not alone. Chief Economist for My Housing Market and contributing editor to PropertyUpdate.com, Dr Andrew Wilson states: “The current strong market conditions stand in stark contrast to a year ago when the market was sliding backwards sharply…” He continued, “With underlying demand drivers remaining strong, particularly in Sydney and Melbourne, the clear prospects are for more robust growth into 2020.”
Just the Facts, Ma’am
While it’s all good to feel warm and fuzzy about future predictions, we thought you might like to see a couple of examples of some recent auction results to whet your appetite for the commercial investment opportunities that lie ahead. So, with no further ado:
This past December in Queensland, 27 Dixon Drive, Pimpama QLD sold at auction. It is a high-profile 1,325-square-metre site with adjoining fuel station, and fast food hub conveniently located across the street from a Woolworths, BWS and Hoppy’s car wash. The brand new tenanted commercial building is located in a major residential growth district midway between Brisbane and The Gold Coast on the M1 motorway. Considered the “fastest-growing” region in Australia outside the capital cities - population up 30% in 2017/2018 - the investment offered substantial depreciation and tax benefits for its new investors. (Sales price not disclosed).
In Victoria, a Blue-Chip Petrol freehold with a long-term tenant (options to 2043) at sold at auction, also in December (sales price undisclosed). Located on one of Melbourne’s most important arterial and development corridors, the service station boasts close proximity to Woolworths, Coles, each of the Big Four banks as well as fast food outlets. The property sits in the “heart of Moreland’s intensive redevelopment and gentrification project” with population growth expected to hit 26% by 2036. The site is keenly positioned for future redevelopment potential (STCA) and is a short distance to Pentridge redevelopment which is reportedly worth an excess of $1 billion and includes residential apartments, hotels, cinemas and supermarkets. You’ll note, this location has all the characteristics of a good commercial investment as we highlighted in our How-To Guide for Commercial Real Estate Investing. You can bet the buyer is looking forward to good tidings for this new year with an estimated net return of over $264,000 p/a.
But if a quarter of a million p/a return isn’t enough for you, how does two-thirds of a million sound? Also in a major Melbourne growth corridor, a successful freestanding Coles Supermarket at 10 Hope Street, Drouin just sold at a December auction. With a secure tenant lease of 20 + 10 + 10-year net lease (including land tax), this deal was too good to pass up. Drouin is considered a “booming satellite suburb” with a projected 90% population growth over the next 20 years. This site has an expected income in excess of $642,000 p/a (projected October MAT). The property sold under the hammer, by Burgess Rawson, Melbourne - pricing details unavailable.
“Great,” you say, “but these auctions are all closed, properties are sold, and there’s nothing left for me to do but wish I were there.” If these deals are making you salivate, have no worries; there are other auctions on the horizon. Commercialview.com.au is currently advertising commercial property auctions through March 2020, featuring the gamut of asset classes in commercial property investing: offices, warehouses, hotel/leisure properties, retail, medical buildings as well as land for development, as is AuctionWorks.net.au. The opportunities are there. So it’s time to do your homework and get your ducks in a row.
So, if you’ve been following along with our Commercial Investment series, you’ve likely decided on the asset type in which you’d like to invest. You’re probably looking at commercial property investments online, and perhaps you’ve narrowed down your search by picking out a specific property. The next step is potentially the most important step on this investment journey - getting pre-approved for a loan so you can attend the auction with the knowledge that you’re good to go. Contact the professionals at Acumen Finance to double-check your to-do list and get pre-qualified for a loan - auction activity begins to pick up at the end of January.
Check back for our upcoming instalments where we’ll talk about the loan pre-approval process, and discuss the nuances of Commercial Mortgage, Investment Financing and Development Finance investing, with a focus on Tier 2 lenders, their capabilities, limitations, and expectations and how Acumen Finance can help you navigate the lending competition.