Australia’s commercial property market outlook is far from doomed

Lodge Team Australia
(Ledge Team Australia)

Property has long been a popular investment choice for Australians, offering reliable passive income and long-term capital growth without the share market volatility, according to Ledge, one of Australia’s leading corporate finance companies. Stronger rental returns, longer leases and fewer outgoings than the residential sector make commercial property a particularly attractive asset class. But in recent months, investor confidence has faltered amid rising inflation, frequent interest rate hikes, and speculation about an imminent recession, Brad Spencer, Senior Finance Executive at Ledge writes.

That being said, the outlook is far from doomed. “Wages are growing, unemployment is at an almost 50-year low, and Australia remains a jewel in the crown of foreign investors. A recent report indicated that foreign investment in Australian commercial property nearly doubled last year, despite the uncertainties surrounding future market performance. While the office and retail sectors have slumped (in certain locations), demand for other asset classes, such as warehouse and industrial, is rising. CBRE research indicates Australia’s national industrial and logistics vacancy rate has tumbled to a record low of 0.8% – the lowest rate globally.”

CBRE also notes Australia has a “chronic shortage” of industrial property and some new development projects’ completion dates have now been delayed to 2023 due to weather and supply chain disruption (material shortages). The Australian market is less susceptible to major fluctuations in supply due to a relatively low share of speculative activity (33%) vs. other major markets such as the US (76%), according to CBRE. This, coupled with persistent demand for space from occupiers, means CBRE doen’t expect to see much movement in the vacancy rate.