Residential property can steal the limelight, but new research shows almost three out of five (59%) Australians are keen to get into commercial property, and over one in ten have already invested in the sector.
The 2022 Property Sentiment Report from Perth-based Momentum Wealth has provided interesting findings, confirming significant investor interest in commercial property.
Three out of five (59%) of Momentum’s nationally based respondents said they were interested in investing in commercial property. A further 12% already have an investment in commercial real estate.
Advantages of commercial property investment
The high level of interest in commercial property is not surprising.
Damian Collins, Managing Director of Momentum Wealth and Chairman of the company’s property funds arm, Westbridge Funds Management, said, “Our survey results indicate many Australians are aware of the significant advantages of commercial property investment.
“These can include healthy ongoing rental yields backed by regular rent returns. This makes commercial property a valuable income-generating asset – one that is less susceptible to the sort of volatility we are seeing in sharemarkets globally.”
Commercial real estate investment opportunities
The commercial property market is highly diverse, spanning industrial, retail, office and other asset classes.
This brings the benefit of choice to investors. However, while it is possible to directly own commercial real estate, that option is out of reach to many individuals due to the high outlay of capital required.
A simpler and often more rewarding way to invest in commercial property in Australia can be through a property fund.
Managed funds advantages
Almost seven out of ten (67%) of Momentum Wealth’s respondents interested in investing in commercial property, said they are open to investing via a property fund.
This reflects awareness of the advantages of a commercial property fund, which includes lower capital requirements, zero debt, and the ability to benefit from the skill and experience of the fund management team.
The expertise of the fund manager cannot be overstated.
It can be the key ingredient that delivers significant rewards to investors through careful selection of properties, sensitive management of tenant relationships, and awareness of incentives to encourage long term leases that minimise vacancy rates.
Perhaps the leading advantage of a commercial property fund is the sheer scale of capital available.
“By pooling resources, investors in a commercial property fund can access high quality properties that attract household name tenants – properties priced well beyond the reach of most individual investors,” explains Collins.
“We’re talking major office blocks, industrial estates and retail centres. These properties appeal to major tenants with proven business models, that actively look for the stability of long-term leases.
“These flow through to reliable rental income, which is passed on to investors as regular distributions.”
A source of regular income
The certainty of rent returns and cashflow makes a commercial property fund especially appealing for self-managed super funds and those in, or near, retirement.
Among Momentum Wealth’s respondents whose main goal is to prepare for passive retirement income, 43% said they would consider investing in commercial property, while over one in ten (12%) have already done so.
Moreover, across those interested in property development, 61% of respondents were open to the idea of investing via a syndicated investment (that is, a property fund) as a way of accessing more capital-intensive assets.
Unlisted commercial property funds sidestep sharemarket volatility
Broadly speaking, investors can choose from two main types of commercial property funds – those listed on the Australian Securities Exchange, and unlisted funds.
A key advantage of unlisted property funds is that they are independent of the sharemarket. This means they are not generally impacted by sharemarket volatility, which can push down the value of listed property funds even if the commercial property market is performing well.
What to expect from a commercial property fund
As a guide to what investors can expect from unlisted commercial property funds, let’s take a look at one of Westbridge’s property funds, the Westbridge Diversified Fund No.4.
It features three major assets: An industrial distribution facility in Broadmeadows, Victoria, a recently upgraded warehouse logistics facility in Canning Vale, Western Australia, and the fund is now looking to add a 1.07-hectare retail complex just south of Perth.
Each of these properties boast reputable tenants. The retail complex for instance is anchored by a freestanding Dan Murphy’s outlet, plus a tavern/bistro leased to the ASX-listed Endeavour Group until 2034. Additional separate retail buildings are tenanted to high-profile brands including Baskin Robbins, Crust Pizza and LJ Hooker.
With three high quality assets spread across very different sectors and locations, the fund offers strong diversity, particularly as the fund aims to add more assets.
What is particularly attractive for investors is the fund’s consistent, monthly income.
“The Westbridge Diversified Fund No.4 has target distributions of 7% per annum*,” explains Mr Collins.
“This is driven by a diversified income stream of rents from high quality, reputable ASX-listed and national tenants. The upshot for investors is regular, reliable income.”
This regular income flow is particularly appealing for investors in retirement. But at a time when equity markets are experiencing high volatility, and cash savings are offering interest rates below cost-of-living increases, a commercial property fund can be an appealing option for investors.
For more information on the Westbridge’s latest diversified property fund, click here.
*Forecast distributions are not promised nor guaranteed and are based upon a number of assumptions. Their achievement is subject to risks. The target return is a target only, not a forecast and it might not be achieved.
This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. It should not be relied upon to determine or to make decisions about the investment objectives, financial situation or individual needs of any person. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest. All investment carries risk and investors should assess the risks of investing in any fund before deciding to invest. Manager, Responsible Entity and Product issuer: Westbridge Funds Pty Ltd ABN 33 652 852 214 AFSL 533936. Mair Property Funds Limited ABN 48 151 957 676 t/a Westbridge Asset Management. Mair Property Securities Limited ABN 28 091 623 862. AFS Licence 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.
