Hi All
Would be interested in comments/views on what is currently happening with CIP in Oz. I follow cycles with resi, do you guys do the same???
Am from Perth and am looking, CIP yields in Perth are not that great atm, not surprised, what about other States??
MTR
For the right sites, people are paying big numbers. Numbers are looking likely to go bigger irrespective of yield because of the fall in AUD. Chinese and Malaysian investors are scouring Australia CBDs again to bid on sizeable freeholds (ie $3m+) - but more so in Sydney and Melbourne.
As always, tightly held locations will command large premiums and will probably do so more often in the foreseeable future. How often do you see a good shop sell on something like St Georges Terrace? Probably once every 5 years?
Lastly, yield is not a concern in many places in prime sites. To give an example, we have sites that rent for around 3% of market value in the CBD. If we invested a million or two in to it to refit it, I could jack the return on (market value + renovation cost) to around 15-25% by converting them in to multiple shops, building extra floors for office/seminar/mini shopping centres, opening up arcades etc etc. Of course at that point the market value would actually be a lot more than "current market value + renovation cost", as it'd sell at a 4-5% cap rate again.
So you ask why don't I do that? Because these sites are priceless when they have no leases and nothing on them. One day someone could offer you $Xm. It could be worth 30% more to someone else on the next day. The optionality is priceless. All that extra rent is worth nothing if the next guy has to knock it all down in order to get the foundations in for his 60 storey tower any way.
It's like this kid who paid $40m to buy a site for development. He bought it at the cap rate and there were 6-7 floors of car parks, probably 20 shops, 4 floors of offices etc. For him to build his tower, he has to knock all that down. But obviously he doesn't think about that because he was 27 at the time.