15 March 2019
| Category - Market Updates

The new frontier for commercial property investment

Strong population growth, government support and low vacancy rates create the perfect conditions

Melbourne Growth Corridors are becoming hot spots for commercial property investment thanks to strong population growth, government planning and low vacancy rates.

Australian Bureau of Statistics reported that Melbourne recorded the largest – and fastest growth – of Australia’s capital cities in 2016-17, increasing by 125,400 (2.7 per cent) to reach 4.9 million in April 2018.*

But suburbs in the Victorian Planning Authority growth corridors were the key drivers with eight of the top ten growth suburbs located in these planning areas. Cranbourne East in the South Eastern Corridor topped the list with a 27% population increase in a year.*

Colliers International Metro Office Report released in early 2019 also supports the growing confidence in the suburban commercial property, reporting that City Fringe, Inner East and Outer East vacancy rates were all well below long term average vacancy levels.

The report found that the low vacancy was being driven by tenants looking to move within outer suburban markets and also those from tenants looking to vacate the CBD due to rising rents.

Stronghold Investment Services, a specialist in Suburban Office and Hospitality Property Trusts, believes the Melbourne suburban commercial property market would continue to build momentum, with people moving their jobs, businesses and homes to the suburbs for affordability and lifestyle reasons.

In 2017 the company purchased two buildings located in the Monash Employment Precinct and has delivered an average of 8.2% cash return to investors since the purchase.

Stronghold recently opened subscriptions for its second investment in a Melbourne Growth Corridor, the Stronghold Hospitality Trust Number 15.

Director and Head of Property Steve de Nys said in addition to the population growth, Stronghold considered a number of factors when selecting sites.

“Population and vacancy rates are just two indicators of a well-performing market, we also weight these factors with the individual economic performance of each suburb, the quality of the tenants, site location and demand.

“Our new investment located in Pakenham is an established entertainment venue in a strong growth corridor, with a long term lease to a highly credentialed tenant, ” Mr de Nys said.

The Cardina Club is located less than 1km from the main shopping precinct in Pakenham, adjacent to a new hotel development (a 64 room ‘Mercure’ Hotel ) and 300m from the local retirement village. The property occupies a well-exposed position on Racecourse Road, a main arterial linkage providing direct access between the Princes Highway to the north and Princes Freeway to the south, carrying an average daily passing traffic count of circa 7,000 vehicles. (Vic Roads 26/3/2018).”

Pakenham is also located within the Cardinia Shire, which currently has a Gross Regional Product of $3.3 billion, growing by 3% last year, with major infrastructure projects currently underway including the construction of the new High Capacity Melbourne Metro Train Training, Maintenance and Interchange depot at East Pakenham.

Stronghold is not the only company identifying with Pakenham’s commercial investment value. According to JLL Director of Retail Investments for Victoria, Stuart Taylor, Pakenham was experiencing “extensive growth”.

“Pakenham is a predominantly residential suburb approximately 55km from the Melbourne CBD in Melbourne’s rapidly developing south-east growth corridor. It is home to an estimated at 65,290 residents in 2015, with population projected to increase to 107,840 by 2026 – a very strong average growth rate of 4.7% per annum over the forecast period.”

Stronghold is seeking to raise $8,750,000 in equity to purchase the Cardinia Club and the trust has a projected average annual return of 7.35% over the first three years. There are also opportunities to improve that return with additional land available for future development (subject to council approval).

For more information about the Stronghold Hospitality Trust Number 15 CLICK HERE

*ABS, 3218.0 – Regional Population Growth, Australia, 2016-17, 24/04/2018

* Colliers International Metro Office H2 2018 RHF

* Dan Murphy’s Pakenham Site for Sale