Private investors rush to buy pubs and commercial properties at auction

The threat of rising interest rates has done little to deter private investors hunting for commercial property bargains, with almost $100 million worth of pubs and commercial properties sold in a series of auctions.

Hotel property group ALE Property Group sold six pubs for over $36 million in an recent auction attended by 250 bidders, while private investors shelled out $61 million for 17 commercial properties in an auction in Melbourne.

Topping the pub auction was the Sunnybank Hotel in Brisbane, which sold for $11.1 million on a yield of just 4.41%. This yield represents a record for the Australian market, according to agent CB Richard Ellis.

The Albion Hotel in Queensland went for $6 million on a yield of 6.25%, while the well-known Ramsgate Hotel in Adelaide was snapped up by an investor from China for $5.85 million, on a yield of 6.74%.

At the commercial property auction, where bidding was described as “intense”, an IGA Supermarket in the Victorian town of Hastings went for $6.8 million on a yield of 7%, while a Westpac branch in the Melbourne suburb of Croydon went for $2.2 million on a yield of just 4.2%.

Graeme Watson, director of real estate agents Burgess Rawson, the firm which handled the auctions, says private investors are very keen to park their cash in property.

“All sorts of private people with bags of money want to put their money where it’s safe and in lots of these cases, the returns they are going to get are going to be less than the cost of money. And with population growth, just imagine what we these properties are going to be worth at the end of their leases.”  

Property analysts David Green-Morgan from DTZ Research says private investors are flocking to the market to find properties under the $30 million level.

“It is basically bargain hunting. They can see that now is the right time to buy and hold the asset for a few years,” he says.

“They are thinking internet rates are going up and prices are probably at or near the bottom, so now is the right time to buy.”

Green says the particularly low yields for the Sunnybank Hotel and the Westpac branch in Croydon reflect the value of blue-chip tenants in an uncertain market.

“Those strongly-tenanted properties are the flavor of the month, definitely. Those tenants are probably as good as you are going to find at that price range.”