A retail and office building in Bankstown, in Sydney’s south west, has set a yield record for commercial properties in the suburb, at a sharp 3.8 per cent, after a lengthy auction.
But the returns are tipped to increase significantly to 7.2 per cent, if the new owners decide to hike up rents. Commercial properties in the suburb typically sell on yields of about 5 per cent, Colliers International selling agent Harry Bui said.
The three-storey complex at 304-308 Chapel Road sold for $8.7 million, with all seven registered bidders vying for the property at Thursday’s auction.
With an opening bid of $6 million, the auction went on for 40 minutes and the gavel finally fell 50 bids later.
An overseas Vietnamese buyer seeking their first Australian investment won the competition and will potentially use the top level of the building for their beautician business in the near future. They will continue to use the rest of the complex for long-term investment.
Underbidders were a mix of local investors, people looking to redevelop the block and investors.
The vendors, who were selling to divest the asset, were business owners who used to run a supermarket on the site in the 1990s, before developing it into the current property under a joint venture in 2008.
With nearly 1200 square metres of net lettable area, the building comprises of seven retail shops on the ground floor and 23 office suites on the upper two levels.
As the property has already reached its development potential and all 30 components are under one title, Mr Bui said the best way to reap the benefits from the asset would be a subdivision strategy.
“It’s already built up to the max but the only way (to add value) could be to redivide into strata (titles) and resell, or to improve the income,” he said.
While the current net income is about $333,000 a year, this could be almost doubled to an estimated $628,000, as the property is “underrented”. Five of the tenants are on short-term leases, while three of the long-term tenants are due for a rental review before early next year.
Mr Bui added that the south-western suburb was “very tightly held”.
“On this particular street, there’s not many for sale; there’s one (listed) a year and people are holding it very tightly, usually they don’t sell (their properties).”
Only four commercial properties sold in Bankstown this year, according to Domain Group records. One of these was the A-grade office tower at 2-14 Meredith Street, which sold for $74.5 million in February.
Bankstown has been earmarked by the state government as a growth centre in Sydney, with transport infrastructure projects in the area, such as the Sydney Metro City and Southwest rail line, boosting investor attention to the region. The metro line is scheduled to open in 2024.
Mr Bui sold the property with colleague Nick Estephen, and LJ Hooker’s Patrick Yeung.