The future’s bright, the future’s commercial

The future’s bright, the future’s commercial

18 February 2020

It may still be early in the year but there are plenty of reasons to feel confident about the future of commercial and industrial real estate in 2020 and beyond.

On the back of The Knight Frank Outlook 2020 Report, which predicts double-digit capital growth for commercial and industrial real estate in Australia for the sixth consecutive year in 2020, we spoke to leading experts about how the year and new decade is shaping up.

Bobby Suminoski, Director, Four Walls Commercial, and REINSW Commercial Chapter Committee Chairperson, says “we are already seeing a lot of enthusiasm in the commercial and industrial markets”.

“Low interest rates are providing opportunities in funding for developers and investors and owner-occupiers,” he says.

“If we as agents can put these groups together and make those introductions and provide the opportunities, I think we will all have a good 2020.”

Barry Cawthorn, Managing Director, Bawdens Industrial, and Commercial Chapter Committee Deputy Chairperson expects industrial property to remain attractive with price and rental stability expected to continue.

Cawthorn says factors creating a positive outlook include an underlying shortage of serviced vacant land, population growth, and an increased demand for space from users to meet growing eCommerce activities.

Strong Start to 2020

Overall, it’s been a good start to the year for commercial and industrial real estate, according to Cawthorn.

“Days on market for assets being offered for sale are falling already this year as competition for scarce assets to buy remains stronger than ever,” Cawthorn says.

“Vacancy periods for space offered for lease increased late last year, but incentives did not nor did rentals fall...this year we have already seen a return to the market by tenants seeking space and this is ensuring space, correctly priced, is already leasing more readily this year.”

What Lays Ahead

Suminoski predicts interest rates will remain steady rather than fall in 2020.

“I don’t see interest rates falling further. I see them as steady, although economic indicators suggest some minor downward adjustments may be prescribed,” Suminoski says.

“I don’t see the banks/RBA making any changes. Perhaps after the budget, there may be some change depending on the government’s budget policies and the public/business sentiment after that.”

Suminoski does predict some tightening in yields and volatility ahead.

“I believe yields will tighten across industrial and the commercial office markets as investors out there are looking for safe returns,” he says.

"Although financial markets are performing strongly, with the All Ords rising nearly 20% in the last 12 months, a lot of investors are exercising caution and predicting some correction in 2020."

Cawthorn says despite further cap rate falls expected this year, rental growth will be more muted.

He also expects increasing periods of volatility in confidence over the next decade, with the effects of recent falling interest rates failing to stimulate the economy.

Cawthorn says correct pricing will be critical to the future success of commercial and industrial real estate in Australia.

So, despite some predictions of volatility, commercial and industrial real estate markets should expect mostly positive and exciting times ahead.



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