The last decade has been full of ups and downs for the commercial real estate sector in Australia. While the industry experienced a slump during the middle of the year with low returns, the total value of the transactions in 2019 has been comparable to 2018 and has not plummeted. The office sector has maintained a stronghold in the market with growing demand from businesses and foreign investors.
The slowdown in the residential property market may have rubbed off on the commercial sector for some time. Still, the growing economy has ensured that the industry keeps moving without breaking its speed. With a 2.1% economic growth rate in 2019, things have been looking positive for the commercial sector.
If you are planning to invest in commercial property for sale in Australia, then this is the right time to finalise the deals as the prices have become fairer in the hottest markets including Sydney and Melbourne. Let us take a look at the year gone by and the trends expected to dominate the New Year to gain insights into the market conditions.
Growing Demand For Office Middle Markets
The year 2019 brought some good news for the office sector as the investors showed a rising interest in office buildings. Although the sales figures have declined in the metro CBD markets, the yields have tightened, and the average capital values have shown improvement. The value of transactions in metro markets soared during the year, and the demand in business hotspots like Sydney and Melbourne took the spotlight.
The top cities continued their winning streak as unemployment was low and the rental yield was up. The other cities that followed suit were Adelaide, Brisbane and Canberra. The Reserve Bank of Australia cash rate cut further supported employment growth. The rental yield in Melbourne has gone up as the vacancy rate is low, and the demand for new spaces is increasing every day.
The future is looking brighter for the office sector as the big technology firms are increasing their foothold in the cities, and co-working spaces are coming up in a huge way. With the rising population of start-ups and self-made entrepreneurs, the demand for co-working office spaces is at an all-time high.
The support from developing infrastructure is further boosting the confidence of buyers as projects like Melbourne underground suburban rail loop and Sydney’s Northwest and Southwest metro rail are taking shape. The supply will increase in the CBD areas during 2020-21 which have been facing low vacancy rates for a long time. Also, the demand for high-quality facilities and amenities required for a suitable workspace will be growing with the need for modern spaces.
A Slight Hiccup In The Retail Sector
The emergence of e-commerce as an alternative to traditional shopping has made a significant impact on the sales of retail spaces in the country. Amazon has captured a big chunk of the market, and the performance of the retail market has experienced a downward plunge in areas like Brisbane and Perth.
However, the industrial property market has grown favourably in Victoria and New South Wales and the need for warehouses by e-commerce companies is also amplifying. The re-election of the Liberal-National coalition and the slight upliftment of the housing sector from mid-2019 made sure that these little bottlenecks will be managed with ease as the returns started growing.
The retail sector in Australia is expected to grow over the five-year period of 2019-23 at 1.8% in transaction value. The sub-regional areas have been showing an upward trend in retail trade, and as a result, the shops in malls are generating a high rental yield and most of them are occupied as the vacancy rates are falling.
The major crowd-pullers in the shopping malls are the food and beverage shops as dining-out has become a common practice among families and youngsters in these territories. Thus they are being bought frequently by buyers.
Perfect Economic Environment For Investment
The economy of the country has been steadily progressing and has entered its 28th year of consecutive growth, and Australia is the only nation to have accomplished this feat. Thus it is a low-risk investment region for foreign investors as well as locals as the IMF suggested that the real GDP of Australia will grow by 2.7% every year from 2020 to 2024.
Being part of the Asia-Pacific region has other significant benefits for Australia as the global GDP of the area in terms of purchasing power parity valuation is likely to get doubled by 2023. Since Australia has considerably strong trade agreements with Asian countries, it is going to benefit from the growth of the region in the coming years.
The positive outlook of infrastructure and exports will maintain economic growth. Those who love to play by the commercial real estate investing rules can take advantage of the steady economy and the recovering house prices that will push other sectors forward.
Commercial Market Will Be Showing Significant Growth
According to a report by Knight Frank, the commercial and industrial real estate sector will clock double-digit growth in 2020 as the investments will swell due to the decreased interest rates and the rulings of RBA that may result in boosting the yield compression. The foreign investments are expected to be pouring in from Europe, Singapore and Hong Kong. The local buyers will not be far behind and will be showing a renewed interest in the office market.
The offshore investment will also concentrate around the same segment and the warehouse domain as the population is rising, and the e-commerce companies are raking in huge profits. Also, the vacancy rates for warehouses have started declining in Brisbane, Sydney and Melbourne. The industrial yield has also shown a promising trend as global buyers are eyeing these profitable properties.
With the economy in a healthy fiscal position and the government taking all measures to negate the slowdown, the confidence of investors in commercial property for sale in Australia is strengthening. As per the reports, the coming years will enhance the performance of the sector and allow it to grow without restraint.