CBD offices to deliver 'extraordinary returns' in three to five years: BIS Shrapnel's Frank Gelber

Commercial property investors should be looking to acquire CBD office assets, which will soon deliver “extraordinary returns” because of a shortage of available space and not enough new stock in the pipeline, according to BIS Shrapnel chief economist Frank Gelber.

Gelber describes the current depressed state of the market as the “lull” before the storm.

He is says it is investors’ jobs to “take advantage of this current quiet patch before the undersupply becomes chronic, when markets are mispriced”, allowing them to buy office stock that will provide “extraordinary returns three to five year from now”.

Gelber bases this forecast on expectations that employment will pick up “solidly” this year on the back of strong minerals investment driving demand for new office space.

Currently though, he says corporate Australia is so risk-averse that it is looking to minimise expenditure at the cost of future growth potential and “delaying leasing commitments”.

“I am not nervous. This is the quiet part of the cycle, marking time, when there is still enough space to satisfy demand. But the writing is on the wall.

“I am not worried about demand – I am worried about supply. The real point is that we are not building enough to satisfy even moderate demand,” he writes in The Australian.

According to Gelber, large swathes of the economy that are not exposed to the effects of the high Australian dollar, such as housing, are still feeling the effects of the GFC but these will recover “as we run into capacity constraints and again start to invest”.

“That time,” he says, “is not far away”.

In line with the two-speed nature of the economy and the skewed impact of the resources boom, Gelber says the recovery will not be uniform.

“Western Australia was the first cab of the rank with only a slight pause in investment following the GFC. Queensland flatlined for two years after the GFC as investment fell between one round of projects and the next.

“But now an extraordinary surge of investment is committed underpinning future growth so that Queensland will be a strong market in a year’s time and booming in two.”

Gelber also expects a pick-up in South Australia on the back of the Olympic Dam project, and the Northern Territory and NSW will benefit from the next round of mineral projects.

“The Australian economy is not facing the problems of Europe and the US. We didn’t have a financial crisis. Our banks are strong and there is little excess capacity in the system.

“Sure, consumers and businesses are cautious, but there is little likelihood of a major downturn. Indeed I expect solid growth,” Gelber says.