This article is from the Australian Property Journal archive
BLUE-CHIP Melbourne shopping strip assets are expected to continue to deliver strong investment results in 2024.
According to Fitzroys’ Market Update and 2024 Outlook, high profile shopping strip assets in the Victorian capital will see strong results and defy negative sentiment into the new year.
“Higher interest rates probably started to bite in the December quarter and some buyers pulled back a little bit, and the market started to realign,” said Mark Talbot, director of agency at Fitzroys.
“However, prime strip retail is still in good demand and quality opportunities are being absorbed. Some strips are seeing vacancies at long-term lows, and rents maintained and in some cases showing growth.”
Fitzroys sold more than $16 million worth of prime shopping strip assets on Toorak Road in a three-month period, including the $5.15 million sale of 91-93 Toorak Road in South Yarra, on a sharp passing net yield of 1.8%.
“We have more evidence that higher interest rates clearly aren’t deterring investors from pursuing high-quality opportunities. The November rate hike might have distracted parts of the economy but we continue to see blue-chip locations stand up despite challenging sentiment,” said Talbot.
“Prime assets in Melbourne’s shopping strips offer excellent investment credentials. The strips are experiencing a real period of renewal at the moment. Vacancies are at long-term lows as Melburnians spend more time than ever at their local villages, supporting trade, while developments on and around the strips are underpinning future trade prospects.”
Talbot noted investors will continue to hold confidence in high-quality income-producing brick-and-mortar assets.
Adding that market realignment will result in more investors looking for yields nearer to 4%.
“We’ll see more yields in that range in 2024; we’ll still see the sharper yields at around 3%, but buyers will be stacking these up against seeing alternative income vehicles given the current bank deposit rates and a rising equities market,” said Talbot.
“Investors still often look at strip investments as a long-term play – looking at 20 and 30- year generational investments, knowing that there will be both bumps and better times along the way. They’re happy to ride a lot of those out.”
The shopping strip market will still attract local investors over 2024, as well as investors from the country at large and offshore investors, particularly from Asia.
Talbot also noted a major factor facing the market this year will be the impact of the Victorian government’s changes to the commercial and industrial property tax, with the annual property tax to be payable from 10 years after the initial transaction from 1 July 2024.
Additionally, stamp duty will not be payable on future transactions of the property, the annual property tax for commercial and industrial property will then be 1% of the property’s unimproved land value, separate from and in addition to the existing land tax system.
No stamp duty will be payable on any future transaction while the property is used for commercial or industrial purposes.
