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Demand grows for assets with 'government secure' tenants

The current climate is unlike anything the commercial real estate sector has experienced before according to agents and banks, and this is causing a shift in the types of properties that are appealing to investors.

In Sydney’s metro markets, certain precincts such as Parramatta, Liverpool and North Ryde are traditionally thought to hold up better in an economic downturn, due to the nature of the industries they employ, such as back of office support staff. But this time around investors and bank are looking at things very differently.

This is the first time the entire white-collar work force has been forced to social distance and work from home, an occurrence which is leaving tenants across all asset classes seeking rent relief.

Banks and investors alike are now closely observing how the tenant and the wider business are performing, with a much larger focus on the tenant’s ability to continue to operate and pay rent during the crisis. Speaking to some commercial property owners, tenants are asking for rent relief, with the Government announcing a range of measures to help renters. A mandatory code of conduct outlines a set of good faith leasing principles for commercial tenancies including retail, office and industrial. Rent reductions will be based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants.

As a result, we have seen strong demand for assets which have government-secured or strong A grade income as seen by Colliers Internationals most recent commercial transactions. The following assets which transacted in the height of COVID-19 highlight this:

Strategy: Sales and lease back 
Date: March 2020
Asset: The Leichhardt Collection, tenanted by Best and Less 
Result: Sold for $29m at 4.63% yield
Transacted by: Matthew Meynel

Strategy: Government backed Centrelink tenancy 
Date: Feb 2020
Asset: Centrelink, Liverpool CBD
Result: Sold for circa $52m trading below 5.5% yield
Transacted by: John McCann, and James Barber.

Strategy: Strong tenant covenant and 7 year lease
Date: May 2020
Asset: Penrith
Result: Sold for $17.25 trading below 6% yield
Transacted by: Gavin Bishop

A recent quote from the founder of Sydney based Ashbridge Capital says: Government tenanted assets are increasingly highly sought after by commercial property investors since the fallout of corona virus. 

The reporting of many nationally recognised tenants requesting rental relief or refusing to pay rent had challenged preconceptions about what secure income entails. This has put Government tenancies on the most desirable list for investors, as seen with the high amount of enquiry we recently received on 211 Northumberland St Liverpool, Liverpool Centrelink.

With the basic fundamentals of property investment - a secure tenant and cash flow, are now becoming ever more important to banks and investors alike.

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John McCann

National Director, Sydney Metro Sales | Investment Services

Sydney West

29 years’ experience in Commercial, Investment Sales, Development and Portfolio Sales. With over 18 years with Colliers International's Investment Sales I have a strong understanding of Parramatta CBD and surrounding metro markets with recent transaction in Burwood for $80 million , $80 million in Sydney Olympic Park and Parramatta for $81 million with 3 transactions in 2017 totaling over $200,000,000 with another currently in Due Diligence i early 2018 for $70 plus million

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