Prime real estate generating stable income: CBA's Kevin Stanley
GUEST OBSERVER
Despite strong price increases for commercial property in this cycle, Australian assets are still provoking significant investor interest — especially prime real estate generating stable income streams for the medium to long-term.
Yields for commercial property remain attractive compared with investments in Australian residential real estate, offshore commercial property and other asset classes.
With investor interest predicted to remain strong through the balance of 2015, prices are set to rise even higher. As a result, yields are on track to hit and surpass previous peaks, riding a fresh wave of purchases, particularly by international investors.
Commercial property transactions are forecast to jump to around $10 billion in the second half of 2015, rounding out the calendar year with a total of close to $20 billion.
While this is lower than the $30 billion turnover in 2014, it is still well above long-term average annual turnover, and indicates continued growth across all sectors.
That growth looks set to be supported by a continuation of low interest rates and affordable debt.
Given these conditions, the volume and number of transactions is likely to span a wide range of prices, asset quality, sectors and markets, opening up new opportunities for investment at many levels of the property industry.
At this late stage of the current cycle, it would be advisable for investors to adopt a medium-term view. However, it is not too late to invest in commercial property in the short term and see prices rise.
Another strategy that may be used at this point in the cycle is to redevelop or re-position a property with unrealised potential — although the outcome will depend on the attractiveness of the location and occupational demand.
Kevin Stanley is head of property strategy and research, Corporate Financial Services, Commonwealth Bank.