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Outlook for commercial property remains positive despite lockdowns

The outlook for commercial property looks strong as tenants return to offices around the country and ecommerce drives record sales.

The Australian Real Estate Quarterly Review complied by Dexus Research, suggests the outlook for property is positive, as lockdowns ease around the country.

The report notes that leading indicators for the office sector are particularly encouraging with business confidence running at high levels and take-up of office space in the major CBD office markets the highest it has been since 2018.

In the industrial sector, e-commerce continues to have a positive influence, with demand running at more than double the average level in Sydney and Melbourne.

Conditions for real estate are also generally anticipated to improve further over the next year.

While lockdowns in NSW and Victoria caused a contraction in growth, much of the lost ground is expected to be recovered in the next 12 months.

Dexus believes leasing markets will improve in all sectors, helped by positive business conditions while increased occupier demand and low interest rates will continue to lift property values.

Given lockdowns are only now beginning to ease, Dexus notes short-term growth prospects in the industrial and healthcare sectors are better than for office and retail, where vacancy will take time to absorb.

On a state level, Dexus expects strong growth in the medium-term, but economic drivers for each state will vary with Queensland and Western Australia seeing a significant acceleration.

Dexus believes the NSW economy will perform well but will be constrained somewhat by moderate population growth and affordability issues.

Infrastructure investment will be a stable and reliable source of growth.

Victoria’s outlook is for recovery from its large and long contractions in 2020.

While population growth will make a positive contribution over the next five years, it is unlikely to match its pre-COVID heights.

Peter Studley, Dexus Head of Research said property should see a solid 12 months ahead.

“Conditions for real estate are generally expected to improve over the next year,” he said.

“While lockdowns in New South Wales and Victoria caused a contraction in economic growth, much of the lost ground is expected to be recovered over the remainder of FY22,” he said.

“Leasing markets are expected to improve in all sectors, helped by positive business conditions.

“In addition, investment demand and capital flows for real estate are likely to remain supported by low interest rates.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.