Low interest rates to drive commercial investment in 2016: Raine & Horne

The RBA leaving interest rates on hold and the Australian dollar's strength likely mean that commercial property and infrastructure assets will reap the benefits from the search by investors for yield, evident from the recent trends in NSW's Newcastle and Charlestown.

In Newcastle, an undersupply of commercial and industrial investment properties against high demand is pushing the yield expectations down to unprecedented levels, said Steve Dick, director of Raine & Horne Commercial Newcastle.

Meanwhile, a recent Raine & Horne auction at Charlestown generated 95 enquiries with 25 contracts issued and 15 bidders registered, achieving a 6.3 percent yield at $1,300,000.

“With only one buyer there are plenty of purchasers left over,” said Steve.

The rise in the Australian dollar could also translate to further rate cuts by the RBA.

“The clear implication is that the rise in Australian dollar has increased the chance that the RBA will act on its bias to ease interest rates again,” said Shane Oliver, head of Investment Strategy and chief economist, AMP Capital.

With growth set to slow due to sluggish mining and housing sectors, relative high unemployment at 6 percent, low inflation coupled with the determination of the banks to put up interest rates independently of the RBA and a strong Australian dollar threatening tourism and higher education, Oliver is confident the RBA will cut interest rates again.

“A soft March quarter inflation report due April 27 could drive this in May – but it may not occur until the June quarter,” he said.