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Demand for industrial properties soars, drives FY 2018 capital growth of up to 15%

October 29, 2018
  • Raine & Horne Commercial Insights Spring 2018 report finds demand for commercial property remains buoyant driven by low commercial lending rates, demand from owner occupiers and self-managed super funds and a severe shortage of new stock.
  • Industrial assets are experiencing record levels of demand with zero vacancies in some locations as the withdrawal of commercial assets for residential housing drives down supply.
  • Tighter lending restrictions are impacting the market for commercial property however many self-managed super funds are cash buyers.

Raine & Horne Commercial announces the launch of its Spring 2018 edition of Commercial Insights, providing an in-depth look at commercial property markets right across Australia.

Commercial Insights confirms the buoyancy of the commercial property market is being underpinned by three main drivers:

  • No significant pipeline of new supply coupled with the withdrawal of former commercial assets for residential property development.
  • Low commercial lending rates making it cheaper for owner occupiers to own rather than lease business premises.
  • Self-managed superannuation funds (SMSFs), and increasingly retail investors, chasing high yields and low maintenance costs.
  • The latest issue of Commercial Insights is being launched at a special event at the stunning Heritage Ballroom, 1 Martin Place Sydney on Wednesday 24 October 2018. The event will be hosted by Ray Hadley OAM of radio stations 2GB and 4BC and will include a professional panel of speakers including Angus Raine, Executive Chairman, Raine & Horne, Nerida Conisbee, Chief Economist REA and Martin Lakos, Division Director, Macquarie Bank.

The perfect storm for premium prices

Angus Raine, Executive Chairman of Raine & Horne, believes the current commercial market is experiencing “the perfect storm for premium prices”.

“Several markets have seen a retraction of stock as former commercial assets are converted into mixed use or residential developments,” says Mr Raine “We have a broad buyer pool as a growing number of investors including self-managed super funds, recognise the strong returns that commercial property is delivering. This is backed by low commercial lending rates, which are making it financially feasible for businesses to own rather than lease their premises.”

Across Sydney, in particular, in North Sydney, Alexandria, Redfern, the Inner West, and right through to the Northern Beaches, the conversion of former commercial properties into residential developments has seriously tightened the supply of commercial assets. With few new developments in the pipeline, demand is expected to outstrip supply for some time.

“For every new home being constructed, there is a resident who also wants to work locally,” notes Mr Raine. “This is further underpinning demand for commercial assets, and in areas such as North Sydney, we anticipate FY 2018 price gains of 10-15%.”

Such is the intensity of demand that Raine & Horne Commercial property experts are seeing a rise in off market sales – an indication that both investors and owner occupiers are waiting to snap up the right property. Among Raine & Horne Commercial’s recent off market sales, a vacant block at 23-25 Anzac Road, Tuggerah was sold off-market for $1.53 million to an owner occupier.

Industrial vacancy rates head towards zero

High levels of demand among owner occupiers are also driving low vacancy rates, particularly for industrial assets.

“In the Sutherland Shire of Sydney, vacancy rates are at 5%, the lowest seen in 15 years,” Mr Raine says. “In other locations such as Penrith, and even further afield in Tamworth, vacancy rates on industrial property are close to zero.

Frocks ‘n’ jocks make way for nail salons and gyms

The rise of online retailing is having a transformative impact on retail assets. In areas where foot traffic remains high, such as the Gold Coast, retail assets continue to enjoy healthy demand from traditional tenants. However, elsewhere, such as in Sydney’s Eastern Suburbs, where retail vacancies are close to zero, a new type of tenant is emerging.

“Frocks and jocks retailers are becoming a thing of the past in some areas,” says Mr Raine. “But that doesn’t mean retail space is sitting vacant. Traditional shops are making way for cafes, nail salons, gyms and even microbreweries. Properties that meet the needs of these businesses are highly sought after.”

Office assets strong in Canberra

In the nation’s capital, office assets are performing well with SMSFs being active buyers in the $15 million-plus market. Office space is especially attractive where a strong anchor tenant is in place, though yields are still robust at 6.0-6.5%.

Brisbane offers counter cyclical opportunities

Across Brisbane – as elsewhere, industrial assets have been the most consistent performer. However, there may be some counter cyclical opportunities in both office and retail categories.

“A refurbishment and lease reset can be a highly strategic move for Brisbane investors,” says Mr Raine.

“The commercial market in Brisbane and the bayside area is being supported by the $400 million upgrade of the Ipswich Motorway. Accompanied by a shortage of industrial subdivisions, I would expect both investors and owner occupiers to reap valuable rewards from commercial assets over the longer term.”

For more information on commercial property markets, download a copy of Raine & Horne Commercial Insights