Chapter 1: What is the main topic discussed in this episode?
It's the Real Estate Podcast, brought to you by ANZ Home Loans for financial well-beings. And welcome to another episode of the Real Estate Podcast, available on iHeartRadio every morning and also on Spotify and Apple and wherever you get your podcasts from. Well, it's another Thursday morning back with us, the 22nd day for September of 2022. The weekend is going to be here before we know it.
And coming up, we're talking to Scott O'Neill with our focus on the commercial property sector and the difference right now between commercial property and residential.
Chapter 2: What is the focus of the episode on commercial property?
We'll also be looking at some of the areas that Scott is preferring to buy into because of the yield return attraction factor. And from Domain this morning, houses are taking longer to sell in every capital city in Australia except for Adelaide, with the average number of days on market for properties stretching up to 29 additional days.
But while that's a byproduct of the market's steady slowdown, sales period for Adelaide is still far shorter than the time it took to sell a property in Adelaide before the pandemic. And that's the barometer, isn't it? We always have to come back to pre-pandemic to remind ourselves and I guess to adjust our expectations of where the true reality sits in the equation of days on market.
It's your weekday real estate breakfast with news, interviews and predictions every morning on The Real Estate Podcast. Billy Piper, she is on the birthday calls. She is turning 39, not too far away from 40 for Billy Piper. And Andrea Bocelli is on the birthday calls. He's turning 63. Well, it was a fairly big day on this day back in 1994. Friends debuts on NBC television.
I have to say, I have never watched an episode on this day. Also in 1975, the assassination attempt on US President Gerald Ford is foiled. And on this day in 1980, bit of an infamous day, the Iran-Iraq war begins with Iraq invading Iran. Sounds a little bit familiar in 2022, doesn't it? It's your real estate podcast for breakfast.
It's the main centre forecast with PRD, selling smarter every day. And a bit of a mixed bag around the country as we look at weather for our Thursday. In Sydney, grab the raincoat expecting some rain and a high of 20 degrees. A different story for Melbourne this morning, expecting a mostly fine and sunny one, a high of 20 degrees.
In Brisbane, showers with a possible storm, 23 is your forecast high.
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Chapter 3: How does commercial property differ from residential property?
And in Perth, expecting a partly cloudy Thursday and 19 degrees. We are just as addicted to property as you are. Let's Talk Commercial, a podcast series with Scott O'Neill. And it's time now to dive in and talk commercial property with Scott O'Neill from Rethink Investing.
Scott is where we all really want to be this morning in Greece, soaking up the sunshine poolside with a refreshing pina colada perhaps. It's tough being Scott O'Neill these days.
G'day, Craig. No, it's pretty good. The summer's starting to wind down. So I've been over here for, I think, nearly 100 days last time I checked. So yeah, no complaints, but getting back into the real world pretty soon.
Yes, that is going to be a real shock to the system. Now, commercial property, people invest in, they have done since the time of property. And is it fair to describe commercial as steady as she goes right now in this continuing correcting market?
You know what? That's probably one of the better little summaries I've heard for a while because it is really steady as she goes at the moment. I'm seeing all these extreme headlines coming out of the residential space. There's always an article saying there's a 25% crash coming. It's quite severe and emotional, if anything. But commercial, it isn't emotional. It
really just about the numbers and we're seeing everything just say like it's basically so consistent at the moment because the returns are the returns. Look, the growth rate has slowed up. That's probably the biggest difference you've seen, but we're not seeing price falls in any of these markets except for the lowest yielding ones, which I've mentioned a couple of times on your show.
If there was an asset that was selling at a sub 3% yield, it's less attractive now because the cost of the loan's gone up. But people that are actually getting a 6%, 7% return, if your interest rate's gone up a little, it's still a good return. And the demand is still there. And it's coming off a very low supply rate as well. So there's not much of this stuff around.
So there's still a lot of people fighting over every asset. And the same can't be said for residential, where there is a lot more supply. And that is the biggest difference.
Yes, because I said steady as she goes. In terms of transactions, we know that you are one company that has been very transactional in 2022. We have talked before about commercial property investing versus residential property investing. What about in the context of right now for September of where we are in 2022?
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Chapter 4: What factors are affecting the current commercial property market?
We did $58.2 million in August last year. So it's been the exact same number number of transactions and dollar amount nearly as this time last year. And I don't know if you remember, Craig, but last year it was probably one of the most buoyant times we've ever seen. The markets were flying, confidence was high, growth rates were extremely good.
But for commercial, it's the supply of properties which was the limiting factor, not the demand. So now that the demand might have fallen off slightly, but there's still a huge amount of people fighting over the existing stock. So it's important to think of that because that's where I go back to the supply side. I think is the biggest difference between commercial and residential.
So I think understanding that as an investor, you really do need to because if you're holding off trying to make a decision, is it better to wait six months to invest because I'm going to get a bargain?
I can tell you right now, you're not going to get that big bargain in six months time in commercial because there's not going to be a huge spike in supply because most of these guys, I know because I'm purchasing it from investors and owner occupiers, they're almost got no debt on the property when we're purchasing.
They're not really going to be too affected by interest rate rises in this market. So supply, I think, is going to remain quite consistent in the world of commercial.
And Scott, an overused word in the real estate market is the word diversify. But if there is ever a sector that truly means diversifying, then that would have to be the commercial property space. And many investors are right now in this holding pattern, waiting to see what is going to happen.
Now, a question to you this morning is, what do you say to any potential commercial property investor who is fence-sitting?
I'd say just make sure you do your window shopping now just so you can understand the market, see what's out there. If a good deal comes up that makes sense from a numbers point of view, from a budget point of view, it is a really good time to invest. If you wait six months, you're probably going to be joining a lot of others that are also waiting. So if everyone's...
Waiting on the fence for that perfect time to invest, which will never come, mind you. There's never a perfect time. There's always a headwind of sorts that you need to consider as an investor. But waiting when everyone else waits is always a mistake. The good investors are investing at times like this when there's a few media articles telling you why it's not a good time to invest.
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Chapter 5: How are commercial property investments performing in 2022?
Yes, and we've talked about yields and returns in different markets. And I thought before I let you go, it's worth highlighting the point of difference that you take when looking at capital cities versus the regional areas. And what I'm talking about is areas that you buy commercial properties from. So perhaps...
let's just step through a few of those regions for our audience so that they kind of get a bit of an idea of where you're attracted to because of the yield returns.
As you may know, we're an Australia-wide company, so we purchase in every state almost every week. And where we're targeting the most at the moment, our two major areas are WA and Queensland. In terms of volume, we're purchasing more there than the other states. The reason why we like those two states is the yields are good relative to other states.
The prices, I think you're getting a better per square meter rate. We're seeing fast rent growth rates as well. So this is really good for your increasing yield over time. And vacancy rates are quite low. Particularly industrial, we're seeing in some sectors of Brisbane, we're seeing 10% to 12% rental growth rates per annum at the moment. It's insane the amount of growth we're seeing.
which is another reason why you'd probably want to buy now because once the rents grow, you got to pay more for the property anyway. In terms of regional areas, we like regional New South Wales, Victoria and Queensland find you as well because the yields are going to be better than the capital cities of respective states. So you're going to get a better cash on cash return.
Yeah, you just don't want to go too small. When you go into regional cities, if you go into places where there's 10,000 or less people, you're going to find there's difficulties with lending. And that will affect your cash on cash return because you won't get as high lending rates as well.
And that's important to be able to lend efficiently because you'll be able to get a better return on your investment long term as well, because you can pull more money out of the deal if you refinance it down the track. So you need to sort of go to major regional cities. If you go to one of those smaller towns, you just need a much higher yield on your purchase.
All right, well, we'll leave it there. I'll let you get back full side and enjoy the next couple of weeks in Greece.
Sounds good, buddy. Appreciate your time as always.
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