Alex Collins and his father-in-law Con Angelatos paid $13 million for a Woolworths supermarket in regional Queensland yesterday, part of $104 million worth of commercial property sold at auction by Burgess Rawson on Tuesday and Wednesday.
But Mr Collins warned that the commercial property market was at risk of a correction given the "insane" prices being paid and rapidly shrinking returns.
"These prices and returns are completely disconnected from the cost of funds, which are going up at the same time that yields are falling," he told The Australian Financial Review.
On Tuesday, a childcare centre in Vaucluse in Sydney's eastern suburbs set a new yield benchmark for the asset class of just 3.6 per cent while a Red Rooster in Brisbane sold on Wednesday on a 4 per cent yield.
Mr Collins and his father-in-law acquired the freestanding Woolworths in Maryborough, about 250 kilometres north of Brisbane, on a 6 per cent yield.
He said many investors were buying commercial property without proper consideration at a time when bank lending to the sector was becoming "a lot stricter".
"A lot of these properties have no growth built in to their leases. There could be a crunch if funding dries up," Mr Collins said.
His comments come as concern grows about the amount of commercial and residential property held in self-managed super funds, a common way for many investors to acquire assets at commercial property auctions.
SMSFs held about $162 billion in property investments as of December, a greater amount than cash, analysis of Australian Taxation Office data by investment bank Credit Suisse found.
The Reserve Bank, in its latest Financial Stability Report also flagged concerns about the commercial property market noting that conditions had continued to strengthen in Sydney and Melbourne with yields at "historically low levels".
The two days of Burgess Rawson commercial auctions suggest that appetite remains extremely strong especially for blue-chip property like Woolworths supermarkets, but also for childcare centres, petrol stations, fast food outlets and other retail property.
Across the two days of auctions, total sales generated $103.5 million for vendors with a clearance rate of more than 75 per cent achieved.
Childcare sales totalled $47 million across the two days, with just one out of nine centres on offer in Melbourne being passed in.
In Melbourne, a local family acquired a retail and office building on Carlisle Street in St Kilda for $1.6 million on a 4.2 per cent yield after the property had failed to sell a number of times in the past.
The buyers of the Carlisle Street property, who asked not to be named, said they had bought the property as a passive investment.
"We believe it's a secure investment in a metro area where there is strong underlying land value" said a family member. "We believe the commercial property market is in the middle – stable," she said.
Burgess Rawson selling agent Shaun Venables said there was "super strong appetite for quality assets".
"The same people, who miss out, come back to our auctions again and again. Childcare is very popular, but there's nothing much better than owning your own supermarket," he said.
