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Back to work drives demand for office space, but industrial remains the star, says new report

February 21, 2024

Raine & Horne Commercial has released its latest Commercial Insights Report, detailing the market for commercial property across the Group’s national network.

A notable rebound in the demand for prime grade office space is evident in multiple areas of Sydney, including Lower North Shore, the Inner West, Penrith, and the Macarthur regions. Additionally, the office market in Wollongong, situated south of Sydney, is experiencing robust growth, primarily fuelled by a surge in demand from allied health businesses. 

Angus Raine, Executive Chairman of Raine & Horne, explains that this increased demand for office space aligns with businesses gradually returning to pre-pandemic conditions.

Industrial property dominates despite supply constraints

The report underscores the sustained robust demand for industrial properties nationwide, fuelled by limited supply and an extended period of consistent performance. 

Brisbane’s commercial property market is experiencing a notable trend of increasing industrial rents, with the surge in demand for industrial space reflecting the city’s thriving economy and burgeoning business activities.”

Investors are actively seeking high-quality A-grade assets to capitalise on the lucrative opportunities Brisbane’s commercial landscape presents. B- and C-grade properties are also performing well, indicating a broad-based growth in the commercial real estate sector. 

Anticipated scarcity of new industrial developments is expected to drive values higher, particularly in key industrial hubs in Sydney, such as Liverpool, Campbelltown, Sutherland Shire, and Macarthur.

Mr Raine said, “The noticeable scarcity of new industrial properties is contributing to low vacancy rates in key locations.”

The report underscores the influence of the Western Sydney International Airport development on areas like Penrith and Liverpool. In Liverpool, the noticeable effect is the transformation of rural properties, which are now being re-zoned for industrial, commercial, mixed-use, or residential purposes. 

In southwest Sydney, there is aggressive demand for freestanding industrial assets, resulting in a supply imbalance in areas like Bankstown. Mr Raine said, “Chronic supply of industrial properties have led to strong sales and leasing outcomes for property owners. 

“However, it’s worth noting that increased interest rates have caused a decline in investor engagement, negatively impacting the values of assets subject to medium to long-term leases. This situation will change with interest rates appearing to be on hold.”

Resilient regional markets

The North Coast of NSW market remains solid, with good interest from owner occupiers and investors, and the industrial leasing market is performing well.

The $10.25 million sale of 8-12 Acacia Avenue, Port Macquarie, represented a strong result for the region and the Raine & Horne Port Macquarie team. The 16,150 square metre site, with a lettable area of 7,838 square metres, generates a gross income of over $1 million annually spread across 61 tenants. The property, featuring commercial and industrial units, is located just 4 kilometres away from the Port Macquarie CBD. 

The commercial market in Southern NSW, particularly in Wagga Wagga, continues to showcase resilience, with notable strength observed in the industrial sector. The scarcity of available industrial land is exerting supply pressure on established properties.

The recent lease by Raine & Horne Commercial Wagga Wagga of 15 Houtman Street, Wagga Wagga, for $150,000 p.a. + GST, highlights the buoyancy of the region’s industrial market. The 974-square-metre new warehouse with ten car parking spaces is in the East Wagga industrial precinct.

In Mackay, in central Queensland, buyer activity remains strong across the region despite the higher interest rate environment. Across the broader Mackay market, Raine & Horne Commercial Mackay reports that all commercial property sectors will remain steady through 2024. Yields typically range from 6.5% to 8.0% depending on the sector and asset, which is helping to attract investor interest in the region.

Chris Nicholl, Commercial Network Head at Raine & Horne Commercial, said, “The Australian commercial real estate market in 2024 is on the brink of significant transformation, which will present new opportunities for savvy owners and purchasers. 

“Influenced by multifaceted elements such as supply chain and construction costs, the cost of borrowing, evolving investment strategies, and changing consumer habits, the commercial sector is witnessing nuanced shifts across various market sectors. 

“The prevailing cost of money is driving a trend towards softer yields across investment properties, which is likely to trigger a reassessment among investors, potentially prompting the entry of properties into the market. 

“Despite these transitions, cautious optimism permeates the commercial sector. Rental sectors, like logistics or retail properties with CPI-linked rental growth, are expected to remain relatively stable and profitable soon,” Mr Nicholl added. 

A full copy of Raine & Horne Commercial Insights H1 2024 Report is available here