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Changes were afoot for the sub-$2 million asset class in the financial year 2022. Following on from these trends, a commercial research specialist shares five predictions that will impact the sector in the months ahead.
In the 2021–22 financial year, this section of the commercial real estate market recorded 16,000 transactions with a total value of $12 billion. Vanessa Rader, Ray White Commercial’s head of research, outlined how these results represent a 2.3 per cent increase on the previous years.
In terms of where the most sales were made, that honour is bestowed on Victoria, whose 28.5 per cent of total transactions slightly betters the 27.6 per cent of NSW, with Queensland rounding out the top three (19.7 per cent).
A sign of its continuing growth in the sub-$2 million commercial sector, Western Australia claimed 11.5 per cent of national sales, followed by South Australia (8.5 per cent). Tasmania, the ACT, and the Northern Territory mustered 4.3 per cent.
She explained that the most popular asset class, having contributed to nearly half of all sales, was industrial, with that sector winning out even as others regained their strength. Unsurprisingly, given the permanency of working-from-home arrangements, as well as the presence of long COVID-19 lockdowns during the end of 2021 in NSW and Victoria, office volumes dropped while retail, medical and hotel/tourism assets climbed.
But as market conditions continue to change, here are Ms Rader’s five predictions for the months ahead:
- Industrial owner-occupier will continue to pursue assets:
Industrial sales accounted for 47 per cent of all transactions last financial year as owner-occupiers competed to secure assets to shelter them from rising rents. Historically low vacancy rates should see more owner-occupiers actively attempt to attain assets to ensure their businesses’ accommodation.
- Interest rate rises will see first-time buyers exit the market:
Last year saw a rise of first-timers entering the commercial real estate market, who sought higher returns on their assets, albeit with greater risk. With financing likely to become more difficult during the next year, it is expected these investors will move back to alternative investment opportunities.
- Tenanted investments will remain in favour:
There has been a growth in the uptake of “set and forget” assets as buyers look for long term, secure income streams. While there may be some amendments with yields, these assets will likely remain attractive to investors; however, more consideration should be placed on their location and quality of lease covenant as well as terms such as rent reviews. Assets in regional locations or with non-national, long-term tenants will see price corrections.
- Vacant assets to present opportunities:
Experienced investors will look to capitalise on changing market conditions. Vacant assets or ones that could be repositioned will be of interest to investors willing to get their hands dirty.
- Medical assets will remain attractive:
This asset class will continue growing in popularity they have garnered over the past few years, which won’t be exclusive to pathology and general practice assets but also extend to specialist services such as sports medicine, cosmetic surgery and natural health services. Additionally, aged care and childcare services will remain attractive, largely due to heavy government subsidies.
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