Commercial investors are laughing – Per Amundsen

The exodus of investors from the market is clear evidence that the Australian Prudential Regulatory Authority’s macro-prudential tightening has actually achieved the goal that they set out to do.  Think Tank’s Per Armundsen explains how that has impacted the commercial investment sector.
Kevin: Well, there’s been a significant exodus of investors from the residential property market over the past year. We’ve reported on that in the show. Clear evidence, therefore, that the Australian Prudential Regulatory Authorities, otherwise known as APRA, their macro-prudential tightening has actually achieved the goal that they set out to do. That’s on the residential side, but what’s happen in the commercial sector? Well, there’s a report that’s just been released. Think Tank’s quarterly market update has been released and joining me from that organisation Per Armundsen. Per, tell me about Think Tank. What is it?
Per: Well, Think Tank has been in business for about 12 years now. We specialise in making loans to the small and medium size business in commercial property and that specifically is up to three million dollars. Interestingly, a lot of similarities with some of the residential property markets just because we are doing smaller deals, but also some big differences as well, which we can talk about.
Kevin: Yeah. We should talk about them, but let me ask you then, what’s the sentiment within the commercial investment sector?
Per: It’s very strong. We’re a little bit bias to the New South Wales and Victorian markets, because that’s where a large percentage of our business comes from. Both the Sydney and Melbourne markets are extremely strong. Other states WA, South Australia, Queensland sentiments picking up, but in Victoria and New South Wales, very strong, and we see that in our business flows.
Kevin: Yeah, and we know in the housing sector, it really has levelled out quite a lot. I mean that’s taken a lot of heat off prices which many people are saying is a good indicator. Is there much flow between the residential sector and the commercial sector in terms of confidence?
Per: It’s an interesting point because I think it does affect confidence. The prices are going up in commercial. Rents are going up. You see that in our report and that reflects what the other analysts are reporting. People are investing in small ticket commercial property.
Kevin: Well, you mentioned that the commercial markets remain strong in Sydney and Melbourne. What about other areas around Australia?
Per: Yeah, they’re picking up. I’ll use an example perhaps what’s been the weakest market which would be WA and Perth. The industrial markets there, prices have been going down. Rents have been going down. Just the number of businesses that are operating, there’s not as many of them. There’s not that demand, but things are starting to turn around. That affects the industrial markets, affects retail and, hopefully, we’ll start to see that in the commercial markets in Perth, as well.
Kevin: Yeah, retail sector, you mentioned there, very much governed by what happens with sales. If the sales are down, then that market seems to be depressed and takes some time to come away. What are you seeing in the retail sector?
Per: Well, it’s really interesting because we know that sales are depressed, and all you have to do is look at the earnings reports from the major retailers, department stores, et cetera. The prices for retail property, particularly for the smaller ticket neighbourhood shopping centres, are quite incredible. The small grocery store with a couple of specialty shops that you might see out in your suburb, a strip shopping centre, they’re doing very, very well, and people are keen on buying them and the cap rates, the yields, continue to tighten. I have to say, personally, I’m a bit of a sceptic, and I wonder what happens when interest rates do start to go up as the governor recently warned us.
Kevin: …which they will do. The type of investor that you’re seeing, Per, are they new to the commercial sector? Are they coming away and thinking they’ll broaden their portfolio a little bit?
Per: I would say that there are two types. There are some new investors, but not all that many. They are often within say the self managed superannuation fund, a sector where people are looking long term investment for their retirement savings. Sometimes they are new to property investment. More of our business, though, comes from people who are running a business. They either currently own a property or are renting a commercial industrial property, and they think now is a really good time to buy and invest for the long term. They’re owner occupied.
Kevin: Think Tank is the company. That’s the report that we’ve been talking about. They’ve been established since 2006 and I’ve been speaking to representative from Think Tank, Per Armundsen. Per, thank you very much for your time.
Per: Great pleasure. Thank you.

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