The commercial property sector in Australia has shown signs of getting hot after more than a year beset by the COVID pandemic.
Record-low interest rates, government stimulus packages, and a growing vaccinated populace eager to invest all paint a colourful picture of commercial property investment in the coming years.
These factors culminated in Australia registering the second-highest year-over-year investment growth for 3Q 2021 in the Asia Pacific, below Hong Kong and above Japan.
Industry analysts suggest that the low rates and high yields have made buying commercial properties cheaper than leasing them, especially for small businesses.
Despite the hot market, investors are still wary of forces that may render their investment a loss.
Hence, it pays to understand the characteristics that make a commercial property attractive to investors.
This article will look into those characteristics in detail.
‘Location, location, location’ isn’t just a widely-spoken mantra as far as real estate is concerned.
A property close to a place with plenty of foot traffic daily translates to more customers for a business.
But the appropriate location still depends on the nature of the business; for instance, an industrial plant in the middle of a business district isn’t necessarily ideal.
Investors are more likely to pick a specific location for either or all of the following reasons:
- There are viable suppliers and distributors nearby
- It’s known for the same goods that the business offers
- Local businesses complement the business owner’s goods
- Property costs in the general vicinity are affordable enough
- It’s overflowing with opportunities for future growth.
Not every location fulfils all these aspects, but some examples, like economic zones, meet most of them.
Websites like HEZ.com.au outline the strategic worth of their location.
They lay at the heart of a busy road and rail network, attract local and foreign businesses, and their economic benefits to investors ensure future growth.
Flexible properties became the talk of the town at the height of Australia’s pandemic lockdown.
As quarantine measures prevented people from going out of their homes, both offices and workspaces across the country went unused.
Even with most of the population fully vaccinated, businesses have already begun cutting back on their office space needs.
The following are from a recent survey of senior executives from Australia’s largest commercial tenants and landlords.
- 58 per cent expect their needs for office space to decrease within the next five years.
- 83 per cent say they’ll adopt a model that utilizes both remote working and hub-and-spoke.
- 58 per cent say they want more flexibility in their commercial properties in the future.
- 67 per cent expect their workplaces to use collaborative tools and technologies more.
Flexibility is also growing among industrial properties, particularly the versatility of warehouse spaces.
Warehouses that feature living spaces for business owners on the upper floor and goods storage on the lower floor are becoming less of an unusual sight.
Even industrial areas are getting a facelift, with ‘lifestyle industrial’ opening to non-industrial businesses.
Given these and other recent trends, investors will indeed be looking into commercial properties that can serve multiple purposes.
The property doesn’t even have to be large, just enough to put every square metre to good use.
A recent analysis of over 300 sales of office spaces in Sydney and Melbourne discovered a green trend.
Commercial properties with a rating of five and above on the National Australian Built Environment Rating Scale (NABERS) sold for up to 17.9 per cent more than those with no NABERS rating.
Even those with a lower NABERS rating sold for 8.3 per cent more.
The analysis shows that investors are keen on considering the environment when investing in commercial properties.
They’re willing to pay more for a property that matches Environmental, Social, and Governance (ESG) considerations.
The more investors use ESG as a screening tool, the higher the demand for green commercial properties.
Such willingness also points to another trend – investing in new construction.
The New South Wales government recently announced that future property developments would be rated on embodied carbon, which refers to its carbon footprint before becoming operational.
ESG-oriented investors will be concerned over embodied carbon’s forecasted increase to 85 per cent by 2050 if not addressed.
Newly-built commercial properties will bring with them the latest in sustainability technology, ranging from solar panels to rainwater capture.
It also eliminates the need for frequent repair or maintenance.
By no means are these the only qualities that investors today look for in a commercial property.
However, most of their investment decisions hinge on where they are, how versatile they can be, and if they’re green-ready.
If the property fulfils these factors, it has a high chance of being sold.