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As small and large businesses adapt to current working conditions, a new wave of caution is sweeping the commercial property sector.
The retail and office sectors have been hit particularly hard, with the work-from-home transition reducing the number of workers in major urban centres. Combined with the high cash rate, businesses are increasingly reluctant to fork out large amounts of money on office leases – resulting in office vacancies as high as 12 per cent in the Sydney CBD.
However, this does not mean that CBD office markets have ground to a halt. According to Chris Nicholl, general manager of Raine & Horne Commercial, owners are adapting to the change by offering substantial leasing incentives to tenants.
“The performance of newer and well-located buildings within proximity to transport infrastructure and amenities are faring better in the current market. Older buildings that need capital expenditures to maintain their presentation and functionality face challenges,” Nicholl observed in Raine & Horne’s Commercial Insights Report for Q2 2024.
Elsewhere, changing business dynamics are altering the size and scale of property that business owners are seeking out.
Geoffrey Tilden, director of Raine & Horne Commercial Central Coast, stated there has been “an increase in office stock available for sale and lease at an entry-level – specifically between 50 and 200 square metres – as established businesses upgrade to larger spaces”.
Small-scale industrial spaces are also proving popular on the Central Coast, as small e-commerce businesses move their operations out of the home.
Across the board, industrial property remains the best performing sector, with consistently low vacancy rates.
“Despite reduced demand compared to a year ago, industrial property remains the most tightly held market sector due to a need for more quality land and premises,” the report noted.
However, even industrial assets are not safe from the rising tide of caution that has swept the commercial property market.
“Steady owner-occupier and investor interest supports a development supply pipeline; however, yields are softening, impacted by lower demand and the cost of money,” stated the report.
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