1. Private Investors converge on value-add assets
Sales volumes are expected to remain subdued throughout 2023 given the increased cost of finance. While many buyer types will retreat, savvy investors will capitalise on increased yields or even vacant assets, albeit at the right price. Those buyers who see development upside in an asset or willing to reposition or repurpose an asset to capitalise on future income and capital returns will be rewarded. Remembering commercial property markets historically have shown much volatility, however over the longer term can yield an investor quality returns.
2. More buyers will follow the population
Over the last year, strong interstate population flows from Sydney and Melbourne into Queensland and to some extent WA has grown the popularity of investment into these states. Growing population has had a positive impact on occupancy levels and returns for some asset classes due to increased demand. This is notable across the full spectrum of assets from industrial property via increased logistic and transport needs, a larger workforce descending on retail and office assets as well as our desire for fast food and need for childcare. Savvy investors will follow these population movements to aid in keeping vacancies low and income return more favourable.
3. The transformation of the retail asset class
This market has been in an evolution phase well before COVID-19, online trade changing the way in which consumers interact with retail assets. Services will continue to move into our retail strips with uses such as medical becoming more prevalent, together with our growing food appetite. While centres will continue to evolve, offering more entertainment options outside of the traditional uses, think ninja warrior and e-sports! Food will continue to be an attractor however uses like childcare and co-working office space may take up some larger holes if and when vacations occur.
4. WFH continues to pressure our major office markets
Markets such as Sydney and Melbourne continue to have a hard time with engaging their staff back into the office on a full time basis. Many employers accept this change in working conditions given the difficulty in attracting talent and altering the way in which they interact with their office accommodation. This will dampen absorption levels and keep vacancies elevated over the short term as well as hindering rental increases or incentive reduction. Sentiment shifts across the workforce will continue as COVID-19 cases re-emerge across the community adding more setbacks to returning to work in some locations, in particular those which have suffered multiple lockdowns in the past. Confidence in office markets in growth zones such as Sunshine Coast, Gold Coast, Perth etc which have benefited from population gains are likely to remain high keeping occupancy rates up and future prospects sound.
5. Domestic tourism to rebound impacting hotel market
While Australians are keen to get back to international travel, uncertainties regarding health, economy and safety will see more travellers seek out domestic holiday options. More affordable airfares and certainty surrounding the currency will re-route otherwise international travellers back home which will improve occupancy levels and grow average daily room rates to never before seen highs. This will put the spotlight back on hotel assets as an attractive investment choice, from major CBD holdings of interest to foreign buyers through to smaller coastal motels catering for the whole family (pets included) for the smaller private buyer.
6. Owner occupiers continue to seek out industrial assets
The low vacancy situation across the Australian industrial market will continue into 2023 given the current limited development pipeline, this will put pressure on rents to grow and create uncertainty for small businesses. The continued need for a range of industrial assets from small units through to large distribution centres will see occupiers take greater control of their accommodation needs despite growing financing costs and actively seek out assets to suit their current or growing business needs, sheltering from possible increases in rents.
7. Government stimulus will grow demand for some assets
Childcare and aged care are two asset classes which enjoy high levels of subsidies for both operators and consumers. This aids in keeping occupancy levels high which means some certainty in returns over the longer term. These assets are typically held in high regard by investors seeking well maintained facilities which can hedge against possible changes to the cost of finance. Despite the elevated demand for these assets, location will remain key to ensure the long term prosperity of the asset and its stable, ongoing income stream.
8. Developments will rebound
After a number of years of limited new supply across most asset classes, next year will see a resurgence in the development of new assets, notably residential and industrial. While construction costs are expected to remain high, the underlying demand for accommodation will see more cranes appear on the skyline. Development site sales have been particularly strong in 2022 and while planning may be a hindering factor, the development pipeline for stock will look more promising into 2023.
Article source: www.raywhitecommercial.com