Sydney commercial buildins and Harbour Bridge at sunset

Navigating a unique commercial market

14 June 2019

As the business and financial hub of Australia, you’d think there would be coverage of the movements of Sydney’s commercial and industrial markets. 

While news of the residential rise, fall and subsequent plateau all but dictated consumer perception, the commercial market was able to weather the lows and resurface with a strong outlook. But that doesn’t mean there wasn’t questions: from agents, investors, landlords and tenants.

According to Knight Frank’s Australian Capital View Outlook 2019, the first quarter of the year was fraught with mixed signals. 

The report suggests many investors questioned whether the recent bout of market volatility forecasted a weaker year for the commercial market. Yet, despite the unsteady outlook for the global economy and financial markets, the report also suggests the demand for commercial property assets across Sydney will remain high, driven by income growth from strong leasing market conditions. 

To make some sense of the conflicting information and help answer some frequently asked questions, we chatted with Barry Johnston, Director of Balmoral Partners and member of the REINSW Commercial Chapter Committee, and Bobby Suminoski, Director at Four Walls Commercial and REINSW Commercial Chapter Committee Chairperson, for their commercial market insights.

REINSW: How have rent and sale prices been impacted in your area in the last six months? 

Barry Johnston: Commercial rent and sale prices have generally remained the same. However, the volume has reduced. The consensus was that most people were “waiting to see” what happened with the two elections and how the effects of the Banking Royal Commission would play out.

Bobby Suminoski: We always find that around election time our rates of enquiry slip a little. This is nothing more than the general public and the business public being cautious in making any major decision until they know who the captains will be in the next term – similar to EOFY each year, when most businesses want to review their last year and forecast for the new year. 

Generally speaking, commercial and industrial rents have been quite strong in our marketplace. I think this has more to do with our demand and supply levels rather than any external factor by interest rates or election. Although interest rates being stable and more recently with the small cut, the feedback we are getting from small business and investors/developers is that with commercial/business/development lending, banks are still being cautious and firm with their lending criteria and performance obligation on the clients.

The poor brother at the moment is retail with our normally strong retail strips suffering with long-term vacancies and falling rentals. Not to mention tenancies in default. I think this is a problem not just in our market but retail in general, as consumers are really embracing the convenience of online shopping. 

REI: What advice are you offering your clients in this market? 

BJ: Decision-makers are likely to have more certainty and confidence now that the election outcomes are known, APRA has relaxed some of the lending hurdles and the Reserve Bank has reduced interest rates. 

These factors are anticipated to give people confidence to start planning and investing. Given the election result was somewhat of a surprise, there may be a lag effect as people reassess their options. Hence, commercial agents will take these factors into consideration and tailor their advice depending on whether their clients are looking to buy, sell or lease. 

BS: Property investment, I believe, is still the best opportunity for investors in this low interest environment. Large regional centres such as our city, Newcastle, are still going through a transformation and reinvigoration, and we still offer much better returns than most capital cities. 

REI: Where do you see the commercial market going? 

BJ: Commercial and industrial markets should continue to perform strongly. However, retail is likely to experience some challenges. Now that there is more certainty in the market, rent and sales volumes are expected to increase.

BS: In our local market I expect our values and demand to continue to grow. We have somewhat of a supply lag, so I think there is still good value and opportunity for good short to medium-term gains for anyone looking to invest or purchase in commercial.

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