End of Year Market Update
As the 2023 calendar year draws to a close it can be said there has been a significant increase in rent roll listings this year compared to the last 3 years. MCRRB has been busier than ever as the year winds up.
There are reasons for this increase in activity from both a sellers and buyers perspective. Let’s take a closer look at these reasons:
Covid Sellers looking to retire during Covid put their plans on hold. Working from home and operating real estate businesses as normal as possible was the main focus. Principals became focused on keeping the staff morale high.
Tight Rental Market We saw a significant drop in rents in some areas, however as the Covid period came to a close rents returned back to normal and even stronger in some areas. Before and after Covid there was a significant increase in investors selling off properties and an increase in owner occupied properties.
Succession With a tight rental market, rental prices at an all time high and staff settled, Principals are looking to exit as their rent rolls and businesses are at a strong value.
Interest Rates We’ve seen a dramatic rise in interest rates in 12 months and this has put pressure on household incomes, meaning in turn business Principals are drawing more. This has put pressure on profitability and sustainability of businesses, and has lead to some distressed sales.
Soft Sales Market A softer sales market this year has reduced overall incomes of businesses, which is one of the factors that has lead to some distressed sales as Principals keep the same drawings and dividends of previous good years.
So what are buyers looking for when seeking to acquire?
Quality is still top of the list, followed by genuine motivated sellers and maximizing economies of scale.
Quality - With more rent rolls and businesses on the market has meant more choice, therefore the better the quality of the rent rolls and businesses are selling with shorter days on market, and less quality rent rolls longer days on market. - An above average AAMI along with low ownership or concentration of ownership as well as limited spread of properties geographically.
Motivated Sellers - Vendors need to have made the decision to exit for the right reasons and be ready this is the time for them to retire or move on to another industry or different market.
Economies of Scale - Buyers are looking to maximise economies of scale. They don’t need another office unless this will take them into a market they’re trying to develop or grow even further upon. If a buyer is considering an office as a Walk In Walk Out, then the cash flow needs to demonstrate sound profitability.
The 2024 calendar year looks like it will continue the pattern we are now seeing. More rent rolls and businesses for sale but the possibility of more distressed sales due to economic forces and a lagging sales market that just won’t kick start with volume.
As always, I am here to help. Please reach out with any questions you may have as a buyer or a seller.
