Investors are being more discerning than ever when it comes to buying commercial property amidst lasting high interest rates.
Ray White Group Head of Research, Vanessa Rader, said it had been a slower year for commercial transactions, however, the various asset classes recorded different levels of interest from investors.
“While the Australian commercial property market has faced challenges over the past year, the varied performance across different sectors and regions suggests a complex landscape” Ms Rader said.
“The industrial and development site sectors have shown resilience and growth, while retail has seen a modest resurgence.
“However, the overall market continues to grapple with the effects of interest rate uncertainty after higher than expected inflation results, putting a dampener on decision making for many investors as we enter into the 2024/25 financial year.”
Ms Rader said industrial property had emerged as the standout performer over the four-year period, particularly during the pandemic.
“Although the volume of large assets coming to market decreased in subsequent years, the sector has seen significant growth recently,” she said.
“This growth has been driven by larger institutional sales and an uptick in private buyers, particularly those investing up to $20 million.”
She said these investors were attracted to quality yields in a market where new supply remains constrained.
“Low vacancy rates and promising long-term growth prospects have kept yields competitive in this sector,” she said.
Ms Rader said development site activity has also seen a resurgence after years of limited action.
“The persistent lack of supply, notably in residential and industrial markets, has spurred this revival, with activity growing to $9.3 billion.”
According to Ms Rader, the retail sector has enjoyed an uptick in activity, particularly during the first half of 2024.
“A shortage of new supply coupled with continued population growth has sparked a renaissance in this asset class, maintaining high occupancy rates and improving future prospects.”
In contrast, the childcare and medical sectors have experienced changes in market activity, Ms Rader said.
“After strong interest in recent years, buyers have become more discerning, particularly in the childcare segment,” she said.
“However, well-located assets with strong covenants remain attractive to private buyers seeking stable returns at competitive yields.”
