Australian commercial property markets primed for take-off this spring: Raine and Horne

The onset of spring has brought good news for commercial property in Australia, with record low interest rates driving significant interest in the sector, according to property firm Raine & Horne.

The Spring 2016 issue of Raine & Horne Commercial Insights says a trifecta of factors –  low interest rates, a supportive federal government and lacklustre returns on many other investment classes – is proving to be a boon for commercial property. 

“Today’s low interest rates make now the ideal time to review commercial portfolios and add new assets,” said Angus Raine, executive chairman, Raine & Horne Commercial.

“Small business owners are well-placed to take advantage of the current favourable market to step into their own premises, or upgrade business premises, and strengthen their enterprise’s asset base.”

In Sydney, vacancy rates are approaching 5 percent in North Sydney as commercial properties are increasingly redeveloped for residential housing. The Northern Beaches is also experiencing exceptionally low vacancy rates, it says.

“Yields of 5-7 percent are achievable on the Northern Beaches, and the construction of Dee Why town centre will further cement Dee Why as a true commercial hub,” said Raine.

The western suburb of Parramatta is experiencing near-zero vacancy rates on prime office space as blue-chip government tenants including the NSW Department of Education move into the area. 

“We’re seeing yields are as high as 7.5 percent on Parramatta office space,” said Raine.

In Penrith, the announcement that Badgerys Creek will be the site of Sydney’s second international airport is seeing a rise in land values. 

In the Macarthur (Campbelltown) area, Raine said  “The commercial market is being driven by owner occupiers, who are taking advantage of low interest rates to move into their own premises. In the sub-$5 million market there simply aren’t enough properties to meet demand.”

In the Hunter, Newcastle vacancy rates for office and retail space, especially in the smaller size ranges, have tightened dramatically as the city’s microbusinesses take their first growth steps.

“Auction is the preferred sale method for the Newcastle market right now, and around 50 percent of commercial properties in the sub-$2 million price range are selling to investors prior to auction,” said Raine. 

In Brisbane, demand from self-managed super funds (SMSFs) is driving up prices for commercial assets in the city’s north. 

“There is a lack of quality secure industrial and retail property investment opportunities, with demand from SMSFs ten-fold stronger than supply. Securely leased investments priced between $2 million-$5 million are attracting 70-100 enquiries during the course of a sales campaign, and can sell on yields of 5.5-7.5%,” said Raine.

The commercial market is also showing robust growth across many other parts of Australia. 

In Adelaide, the Torrens Road to River Torrens South Road Upgrade Project has increasing prospects for commercial property by improving transit flows, and in Melbourne, vacancy rates remain minimal with yields in the order of 5.0-7.0 percent across the city.