Australia’s commercial property professionals have maintained a bullish outlook on capital values for the coming 12 months. However, the value of retail assets is likely to decline further, according to new research from the Royal Institution of Chartered Surveyors (RICS).
The RICS Q4 2019 Australia Commercial Property Monitor – which surveys experts working in the property industry, including valuers, to gain insights into market confidence – delivered the strongest outlook for overall commercial capital values since the first quarter of 2018.
Most of those surveyed cited the investor market as the principal source of confidence, noting that the majority of demand was coming from domestic investors rather than offshore.
Investor sentiment edged higher to sit at +8, while owner-occupier sentiment remained flat, near zero.
Access to finance was one of the critical drivers of investor activity, with 40 per cent of respondents citing easier access to credit as a source of confidence.
Combined capital-city values and rents are expected to increase by between 1 per cent to 1.5 per cent over the next 12 months.
But respondents noted a significant divergence in values depending on asset class and city.
Office and industrial properties are expected to substantially outperform retail, while Sydney and Melbourne are expected to see more substantial overall increases than Brisbane or Perth.
Prime industrial values across the country are predicted to rise by 4 per cent over the coming 12 months while prime office values are expected to jump by 3.5 per cent.
RICS Australasia managing director Chris Nicholl said the expected rental upturn across several asset classes was driving investor confidence.
“Confidence in the market is largely driven by the expected rental returns for prime office space, with Sydney, Melbourne, Perth and Brisbane all reporting expectations of a healthy increase over the first quarter of 2020,” Mr Nicholl said.
“A forecast interest rate cut and the recent diminished tension in the United States-China’ trade war’ have also been attributed to lifting sentiment.”
Prime retail values will remain relatively flat, with a 1 per cent increase predicted. But secondary retail values are likely to dip by 2.1 per cent, with Sydney and Melbourne recording the biggest dip of all the capitals at 2.2 per cent each.
In terms of rents, prime office rents are expected to jump by 3.2 per cent in the next 12 months while prime industrial rents will increase by 2.6 per cent.
Meanwhile, prime retail rents will grow by just 0.1 per cent, and secondary retail rents will dip by 2.2 per cent. Melbourne will be the worst hit in that category, with respondents predicting a dip of 3.7 per cent.
“While Brisbane and Melbourne are expected to see a slight increase in prime retail rents, the forecast remains bleak for Sydney and Perth,” Mr Nicholl said.
He added that there was little on the horizon to indicate a short-term turnaround for the retail sector.
“Retail continues to underperform other asset classes, and signs of recovery are looking increasingly unlikely, with the recent emergence of unforeseen problems such as the outbreak of coronavirus.”
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