Commercial property benefiting from economic upturn

Commercial property benefiting from economic upturn
Chris LangDecember 7, 2020

Have you noticed how people are generally now acting in a far more positive manner and that's simply because they are starting to feel "wealthy" again.

But you need to look deeper

With share and property prices rising, consumer confidence has finally returned — which was confirmed by the improved retail sales during December and January.

Plus, you saw GDP exceed expectations — by rising 2.8% for the December quarter.

This increased spending is also being supported by high household savings.

A clear indication of renewed confidence

And this has shown now up in spending for entertainment and eating out — which historically, has been recognised as a clear indication of renewed confidence.

New housing approvals have improved by 35% over the past 12 months. And once complete, these homes will also need to be fully furnished — which is great news for all the homemaker centres.

Furthermore, Coles will be investing more than $1 billion to construct 70 new supermarkets, over the next three years.

All of those workers who contribute to this surge in exports will all need to be housed somewhere.

In its May Budget, the government intends to curb wasteful recurrent expenditure inherited from Labor. While it also plans to embark upon significant infrastructure projects — to start boosting employment around the country.

A surge in exports

For the first time in most people's memory, Australia will be enjoying a positive balance of trade.

In other words, for the next decade or so, you should be seeing our exports exceeding imports. And this will further help in reducing Australia's overall debt.

Even though the boom in mining expenditure may have come to an end, the resultant export of raw materials will now continue for years to come.

Furthermore, our exports in education, tourism and business services will all grow dramatically — as the global economy improves.

All of those workers who contribute to this surge in exports will all need to be housed somewhere. And that will open up opportunities for new suburban office and warehouse facilities around Australia over the next three to five years.

Further evidence of an underlying strength in the commercial property market is now provided by the latest IPD/Property Council index.

During 2013, you saw investors (both local and overseas) stride out from the shadows of the global financial crisis. And as this graph confirms, every sector has displayed a healthy improvement in selling yields.

Both the US and UK commercial property sectors have responded slightly ahead of Australia, because their labour markets (and therefore demand for space) have been improving at a faster rate.

Savvy investors are already in the market

Investors have already sought out solid opportunities.

Nevertheless, there has been significant (and consistent) Asian money pouring into Australia over the past 12 to 18 months — as investors have already sought out solid opportunities in the $100 million plus bracket.

This has effectively forced local buyers to bid up prices for lower-valued properties — or simply miss out on securing a position, before the expected upsurge gets fully underway.

The effect of this strong activity won't take very long to filter down through to the lower price brackets and then, out into the wider suburban markets around Australia.

Bottom line: They say that no one rings a bell at the bottom of the market. However, what's occurring is probably the closest you'll likely get.

Therefore, observe the signs and make sure you act accordingly if you've been at all hesitant about stepping into the market.

Chris Lang

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property.

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