Surge in pre-auction deals, participation in online auctions of commercial properties during COVID-19 pandemic: Ray White

A Melbourne-based “serial investor” has bought one floor of a Queensland building prior to auction despite not having set foot in the building, one of a growing number of pre-auction sales happening during the coronavirus pandemic.

The property at 19/100 Goondoon Street in the Gladstone CBD was sold by Ray White on behalf of the Sydney-based owner for $875,000.

Most of the building is leased to Rydges as a conference and event space for guests staying in the hotel next door.

The federal Department of Agriculture takes up 35 per cent of the floor space, used as office space, while Rydges leases the remaining space. Both tenants are on new three-year leases with a combined current net income of $97,246 a year.

Mr Marshall said the high-profile nature of the two tenants likely helped get the deal over the line, adding that it was rare to find buildings leased to national brands in the Gladstone market.

Ray White head of agency operations Andrew Freeman said the sale was typical of the changing nature of commercial property transactions during the pandemic, with the number of pre-auction deals for the group across the country sitting at 18.8 per cent, up from the long term average of 12 per cent.

Mr Marshall anticipated that pre-auction deals would continue as buyers and sellers put an increased emphasis on certainty.

“The buyer was a serial investor based in Melbourne and they’re someone we reach out to regularly when we have a new campaign hit the market,” he said.

The buyer was very keen to get the deal tied up before auction.

“Bidding at an auction is different now so if they can tie it up beforehand, they will,” said Mr Marshall who handled the sale along with colleague Jared Johnson from their Gold Coast office.

“We’re based on the Glitter Strip [Surfers Paradise], the property was in Gladstone, the vendor was in Sydney and the buyer was in Melbourne – this was a geographical jigsaw puzzle,” Mr Johnson said.

He said investing in quality marketing materials had been the key to securing the sale.

“Even in the current climate of uncertainty, the buyer was comfortable with signing a contract on an unconditional basis because of the property video we had produced,” Mr Johnson said.

Cashed-up buyers driving market

Tracey Ryan, an agent with Ray White Commercial Noosa and Sunshine Coast North, said she had sold two properties during the COVID-19 pandemic, both of which had been to active buyers already registered on her database.

While both sales were still in conditional stage, she was confident that there would be more action in the northern Queensland market over the coming months, particularly for properties worth more than $1 million.

“It’s about keeping listings in front of people who are already active buyers, particularly in that top-end million and above space.”

While she said COVID-19 had played a factor in negotiations for both sales, particularly around the impact of potential future rent relief, it wouldn’t hinder buyers who would otherwise be facing the prospect of poor bank returns or the tumultuous share market.

“They’ve got cash. They’re not borrowing, they’re looking and they’re looking for reasonable properties and they are also not wanting to have that money in the bank or in the share market. They are probably adding a bit to the cap rate to make room for any COVID-19 measures – whereas before they might have been looking for 6 to 7 per cent, now they are looking at 8,” she said.

Online auctions full steam ahead 

In NSW Ray White Commercial is reporting success from its transition to online auctions.

Mr Freeman said 399 online auctions had been conducted since the transition, with NSW leading the way with 129 of those, followed by Victoria on 116 and then Queensland on 90.

Although clearance rates were down, Mr Freeman said the drop had not been as significant as some had predicted.

“Auctions clearing on auction day since the transition sits at 42 per cent. This is 2.3 per cent down year-on-year. It’s certainly not the cliff that was being forecasted.”

In fact the number of bidders taking part in online auctions was higher than for the earlier standard auctions.

“During the period most affected by COVID-19 to date, the group has seen registered bidders of 5.5 per property, which is an increase of 3.3 for the same time last year. Another encouraging number is the active bidders which currently sits at 3.5 per property, representing an increase of 1.6 from the same time last year. The message from auctioneers has been those registering to bid are genuine and actively participating,” Mr Freeman said.

Ray White Commercial Sydney city fringe principal Kristian Morris sold a commercial warehouse at 2 Frenchs Lane, in Summer Hill, to an investor via an online auction on March 28 for $1.655 million, following 64 bids.

Mr Morris said the final price was “hundreds of thousands” over its reserve.

The auction had five active bidders, with an opening bid of $1 million.

“This really was a terrific auction with five of the nine registered bidders competing to smash the reserve price for a vendor who was rightly delighted,” Mr Morris said.

He said the key to a successful auction started with getting the vendor onboard.

“The key to this new world of auctions working is communication, and lots of it. We took the time to take the vendor through the process so they felt comfortable throughout,” Mr Morris said.

“Good properties in good locations with good fundamentals will always perform well, irrespective of what’s going on in the market at the time,” he added.