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A new report showed that the higher interest rate environment has had little impact on commercial investing to date, with “going green” becoming the new hot trend among buyers.
The Commercial Insights Q4 2022 Report from Raine & Horne showed that the commercial property sector remained “bouyant” in the face of the rising interest rates, evidenced by the high volume of cash buyers in the market.
Experts particularly noted that cash is king for buyers in the sub-$5 million space — which is helping to protect the market against the impact of interest rates.
The report cited factors including lack of quality stock, demand from owner occupiers, and an increased pool of investors looking for investments with low levels of volatility which are driving the commercial property market.
Industrial properties were also named as one of the best performing asset classes of the COVID-19 pandemic.
As the economy rebounds, the report said that demand for retail and office space is experiencing a rapid uptick.
“Retail and office assets are experiencing a rapid post-COVID recovery as workers return to formal workplaces, increasing foot traffic in central business districts,” the report stated.
Experts highlighted that the industrial property market continues to experience a significant undersupply of properties, which are driving values up and keeping vacancy rates at near-zero levels in many areas.
Raine & Horne executive chairman Angus Raine said that rising interest rates are expected to see yields rise in the next 12 months, particularly among retail and office assets.
“However, yields on industrial assets are expected to stay the same owing to high demand and extremely tight supply,” he stated.
The report noted that strong demand from owner-occupiers who frequently operate distribution-related firms, as well as those who are involved in the packaging of food and consumer goods, is driving the continued growth of industrial real estate.
In Sydney’s south-west, Raine & Horne Commercial experts report that demand for industrial property is at an all-time high with no signs of slowing down.
Demand pressure also increased significantly due to the construction of the city’s second international airport at Badgerys Creek.
On a broader scale, Raine & Horne stated that demand for industrial assets is underpinned by a large cohort of buyers looking to diversify their property portfolios by acquiring commercial assets.
“Owner occupiers are still aggressively seeking quality industrial assets, and we are seeing very low industrial stock levels come onto the market. In some areas, businesses need to plan 24 months in advance to find new premises.
“Many locations across Australia have little or no land earmarked for new commercial developments — especially industrial estates. We recently saw industrial land on Queensland’s Sunshine Coast sell for $750 per square metre — lots that were commanding just $300 per square metre less than three years ago,” Mr Raine remarked.
Another emerging trend that the report put a spotlight on was the growing interest in money-saving “green” features.
Raine & Horne reported that eco-credentials are gaining traction among buyers and lessees, evidenced by the increased enquiry about a prospective building’s environmental credentials.
Mr Raine said that government tenants and NDIS operators are now on the hunt for properties that tick the boxes for environmental, social, and corporate governance (ESG) criteria.
“This has increased demand for modern, high quality properties that can deliver cost savings through reduced power or water consumption, or which create a more comfortable working environment for employees,” he stated.
In the office leasing market, the executive noted that government tenants often require a specific NABERS rating that measures the environmental performance of buildings and tenancies.
“More generally, buyers and tenants are increasingly enquiring about the ‘green’ features of a property, and this is a trend likely to gain traction as Australia heads toward net zero by 2050,” Mr Raine stated.
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