Commercial property valued under $2 million is likely to remain in demand, despite rising interest rates reducing the pool of buyers.
Ray White Commercial Head of Research, Vanessa Rader said sub-$2 million industrial property had been a standout performer over the past two years, but rising rates could reduce some demand.
“Industrial sales represented 47 per cent of all sales this last year, with owner occupiers competitive in securing assets to shelter from rising rents,” Ms Rader said.
“With vacancies remaining historically low, owner occupiers will continue to actively compete for assets to give their businesses accommodation certainty.”
Ms Rader said interest rate rises will see first time buyers exit the market.
“We saw a large increase in first timers making their first foray into commercial real estate last year, seeking out higher returning assets to residential while moving up the risk curve,” she said.
“With financing likely to be more difficult over the next year the spread to yield will see these investors move back to other investment types.”
According to Ms Rader, investors will likely continue to seek out tenanted assets.
“Over the last few years we have seen the growth in ‘set and forget’ assets transacting, as buyers look for long term, secure income streams,” she said.
“While yields may see some amendments, these assets will remain attractive to private investors, however, greater consideration is likely on their location and quality of lease covenant and terms such as rent reviews.
“Assets in regional locations or with non-national, long term, tenants will see price corrections.”
Ms Rader said vacant assets are a new opportunity for savvy buyers.
“More experienced investors will look to capitalise on changing market conditions,” she said.
“Assets which are vacant or could be repositioned will be of interest to investors willing to get their hands dirty albeit at the right price.”
Since the onset of the pandemic, medical assets have been incredibly popular and they are likely to remain attractive, according to Ms Rader.
“Over the last few years, medical assets have grown in popularity as both investors and owner occupiers capitalise on the increasing population,” she said.
“This has been a growth market off the back of not just pathology and general practice thanks to COVID-19 but also specialist services such sports medicine, cosmetic surgery and natural health services.
“Furthermore assets such as aged care and childcare which offer heavy government subsidies will also remain attractive.”