Read the full interview here:
James N.:G’day guys, James from mrkts.com.au here. And today we’re very lucky to be joined by the head of Ray White Broadbeach Commercial Division, Mr. Adam Grbcic. Hello, Adam, how are you?
Adam Grbcic:Yeah, well, thank you.
James N.:Very good. Adam, we thought we’d start off with an easy one today and I just wanted to learn a little about yourself, so give me your C.V. in under one minute.
Adam Grbcic:I work at Ray White Broadbeach in the commercial division, but I guess my history is after graduating Bond University and doing development and valuation, I tried the valuation field out. I worked in valuation for about two years before joining my father in commercial real estate. And I’ve been in commercial real estate now for about seven years, focusing on mainly tenanted investments and freehold investment sales.
James N.:So, why commercial? What made you get into the commercial space?
Adam Grbcic:I think coming through commercial valuation, I just got the right groundings to be a commercial agent. In comparison to residential, commercial is more figures, numbers related and less emotion related. And I think I just resonated with that better.
James N.:For the guys at home in our community page, they often ask us a couple of questions trying to understand what the difference is between commercial property and industrial property. Can you give us a ballpark on what those two definitions are or are they different or are they the same?
Adam Grbcic:Within commercial property, there’s generally three sectors. Commercial relates to office space, retail refers to shop space, and industrial refers to factory space.
James N.:Okay. When you start off on your property journey, like a lot of the mrkts.com.au members are, I think getting some idea of some definitions and words that they don’t normally hear is always beneficial.
James N.:So can you explain a couple of these terms that we get asked quite a bit. What is a vendor?
Adam Grbcic:A vendor is the property owner.
James N.:So the property owner selling the property?
James N.:Okay. Or anyone?
Adam Grbcic:Yeah, no. A vendor is a property owner.
Adam Grbcic:Yeah. Also a landlord could be referred to as the property owner.
James N.:Okay, understood.
James N.:Then they hear things like terms, when they go to purchase a property, the agent will ask them, “So, what terms can you offer?” Terms related to settlement or what does that sort of encompass?
Adam Grbcic:A term is a variation to a standard contract. So terms can relate to your settlement term. It can relate to whether or not the contract is subject to something, subject to finance, subject to building and pest, subject to due diligence. Due diligence is just a general search to secure a property and then take whatever searches you see fit. Or subject to development approval.
Adam Grbcic:Some options, yeah.
James N.:Thank you. So something important when looking at commercial property would be the income that you’re going to return from that property. Because you’re not buying it from an emotional perspective, generally. So can you give us a little bit of an understanding about the difference between a net income or a gross income?
Adam Grbcic:Depending on how the lease is structured, a gross income would be the income collected which doesn’t take into consideration your outgoings. The net income is the income received after all expenses. Your expenses are things such as your rates, your water, your body corporate if applicable, and your building insurance.
James N.:Now, they’re often referred to as outgoings, would that be correct?
Adam Grbcic:Those are your outgoings, correct.
James N.:Okay. So then when people are doing their numbers at home, really they want to see what their costs are versus what their returns are?
James N.:And that will give them a good idea of what they’ll be yielding from their property?
Adam Grbcic:Yes. So you basically … You look at your income less any expense, will give you the net income representation. And that’s what you should be looking at.
James N.:Okay. So Adam, your area of expertise is the Gold Coast area, would that be fair to say?
James N.:And so what sector has the strongest demand currently that you’ve noticed on the Gold Coast?
Adam Grbcic:I think on the Gold Coast, industrial has the most demand.
James N.:Yeah. Okay.
Adam Grbcic:Freehold industrial properties have got the highest demand.
James N.:And so what is a freehold industrial property?
Adam Grbcic:Freehold means you own the land. Whereas a strata refers to a unit with inside a body corporate.
James N.:Okay. Similar to if you were buying a unit in an apartment building?
Adam Grbcic:Yeah, versus a house.
James N.:Okay. Understood. And so, what is the most common property that you’re listing and selling at the moment? I understand that in high demand is industrial, currently. We’ve been over this in the past. But what at the moment is the most common property you are listing and selling?
Adam Grbcic:I think over the last couple of months owner-occupied properties have become more prominent. So those are properties that are vacant rather than investor stock. And the reason for that is because the lending criteria is still generous towards owner-occupiers. And in most sectors it’s cheaper to buy your own property rather than rent.
James N.:But if you’re an owner-occupier, does that mean somebody who owns their own business and then goes and takes over that space?
James N.:Okay. Understood. So we talked about the importance when looking at commercial, there’s not a lot of emotion in it. And you’re talking about what your returns are. That’s really the crux of the matter.
James N.:So what is the ideal yield that purchasers are looking to achieve?
Adam Grbcic:As a purchaser, the higher the yield, the better.
Adam Grbcic:In reality, yields that are being achieved are anywhere between six and eight percent, at the moment.
Adam Grbcic:And I guess the way that the purchaser looks at that, if you are lending at a certain rate you just want to ensure … because you’re looking for an income producing property, that the property is returning a higher level than what you’re borrowing at. Because the difference between those numbers is your income.
James N.:And so this is the big question, Adam, what is your opinion of the market currently? If you can take off your agent hat and you put on your sitting at home watching the cricket hat, what is your opinion of the market currently? In the commercial space.
Adam Grbcic:The commercial space on the Gold Coast still offers the best value in Australia, I believe. I don’t think that you compare the Gold Coast to your regional towns. The Gold Coast is the sixth largest city. And I think within the top six cities the Gold Coast is still representing higher yields for purchases. And so I think it’s strong.
James N.:Okay. So Adam, for people on mrkts.com.au who are entering the market now, what would be your top three tips for purchasing commercial property at the moment?
Adam Grbcic:The top three tips would be choose a sector, my recommendation would be industrial. The reason for that is that industrial properties, there’s very little that can happen to the internal. There’s very little fit out works that a tenant will require. And turn over tenants, if you do lose your tenant, it’s shorter than the other sector.
James N.:Yes. Okay.
Adam Grbcic:The second tip would be look at your lease terms. So rather than looking at the total lease tenure, look at the tenure remaining. Because that’s what’s important for you.
Adam Grbcic:Third point, choose an area that you’re familiar with and that you’ve done your research on.
James N.:Very important, doing your research. That’s a fantastic three tips.