Commercial Insights highlights the factors driving commercial property: low interest rates, tight supply of stock, a growing number of self-managed superannuation funds (SMSFs) chasing high yields, and infrastructure developments.
Low interest rates – owning is now cheaper than leasing
Angus Raine, Executive Chairman of Raine & Horne Group, says, “Continued record low interest rates are making it more cost-effective for many small-to-medium-sized enterprises (SMEs) to own rather than lease their premises. The commercial asset is often held within the proprietor’s SMSF providing a win-win for all parties – security of tenure for the business, and a strong level of control over super fund returns.”
Tight supply of stock
Mr Raine says, “In many markets across Australia, commercial property is very tightly held, limiting the supply of stock coming onto the market at a time of high demand. With no pipeline of new stock under development, tight supply is being further exacerbated by the significant number of commercial assets being converted for use as residential properties.”
“These drivers are especially noticeable in North Sydney and the Sydney CBD where commercial asset values are expected to rise by 10% by the end of 2018,” says Mr Raine.
Foreign investors make way for SMSFs
Asian investors, who have been the dominant overseas investors in Australian commercial property in recent years, are declining in numbers following regulatory changes introduced in China in 2017. However, SMSFs are filling the gap.
Mr Raine notes, “A volatile sharemarket and low returns on cash is seeing SMSFs turn to commercial real estate in droves.”
“This is further supported by the escalation in SMSF numbers, with an average of 34,000 new SMSFs being established each year. Commercial property is increasingly recognised as a highly desirable asset delivering strong capital growth, healthy yields, long term leases and low maintenance costs, all of which is extremely appealing to SMSF trustees,” adds Mr Raine.
The positive impact of infrastructure
Infrastructure continues to be a significant force underpinning interest in commercial property markets – and breathing new life into regional areas.
“There is no doubt that large government infrastructure projects drive employment, the economy and ultimately the commercial property market,” says Mr Raine.
“The development of the South East Light Rail network in Sydney’s Eastern Suburbs, is generating new commercial developments, with 60.0% of sales coming from off-the-plan developments. Further afield in Newcastle, the commercial market is being supported by the Newcastle Light Rail project. In Perth, the Northlink expansion is providing impetus for commercial property.”
Robust yields meet intense buyer interest
“Strong yields, typically around 4.5-6.0% are common across Australia’s commercial property market right now,” says Mr Raine.
“But when it comes to buyer demand, industrial assets are at the top of the leader board, and strata units are achieving impressive prices following exceptionally brief listing periods.
“As a guide, a 319 square metre unit located in Minto, NSW, recently sold for over $800,000. Two years ago, the same property wouldn’t have achieved a sale price of $500,000.
“Also, in Sydney, a freestanding 500 square metre building on 740 square metres of land in Caringbah, which is leased for $82,000 per annum, achieved a sale price of $1.975 million after being listed for just one week,” notes Mr Raine.
For more information on commercial property markets, download a copy of Raine & Horne Commercial Insights here.
For further media information contact:
Angus Raine, Executive Chairman, Raine & Horne Group on 0409 920 697
Kim Pilkington, Communications Executive, Raine & Horne Group on 0414 358 722
 Self-managed super funds: a statistical overview 2015–2016, Australian Taxation Office, January 2018 https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/smsfs_annual_statistics_overview_2015-16.pdf