2021 Australian commercial property trends and why it’s a prime time to invest

Commercial property has long been a strong investment option in Australia. However, like most industries the sector ebbs and flows with changing trends and world events.

To help maximise return on your investment, astute buyers will tell you how important it is to keep your finger on the pulse of fluctuating shifts and trends. The impacts of COVID-19, for example, remain prevalent and are being felt throughout the sector and influencing investor behavior.

From regional location popularity and growth, demand for “essential service” assets to market volatility and low interest rates, more and more people are following the property market for stable and secure investment opportunities.

We’ve summarised some of the most prominent commercial property trends of the year so far and how they may affect investment decisions, whether you’re an avid property investor or looking to start your portfolio.

  • Increased Demand for Regional Investments

In the last 9 months Burgess Rawson Sydney has facilitated more than $250 million in sales of regional assets which is a whopping 68% increase compared to the year prior.

It is fair to say COVID 19 has affected most areas of life, the long-term ramifications are still emerging with more people working from home (WFH), the trend of Australians relocating from heavily populated city areas to outer suburbs and regional areas for lifestyle reasons is expected to continue. This migration trend has resulted in demand for commercial property assets accelerating in regional areas.

Restrictions on International travel have also played a big hand in the growth and popularity of regional assets. Australians have been forced to explore more of their own country, resulting in investors discovering regional areas for the first time, such as the South Coast of NSW as an example. Many investors are attracted by the strategic geographical advantage of the South Coast as it draws on interest from three major capital cities (Sydney, Canberra and Melbourne)

We expect to see growing regional demand for some time. It is a positive shift for Australia, distributing the population more evenly and allowing established regional cities to strengthen their business hubs.

  • Demand for the “essential service” asset classes

Commercial properties leased to essential service tenants, such as medical services, government agencies, fast-food, service stations and liquor, have cemented their position as resilient and pandemic proof investments.

In the last financial year alone, 70 per cent of Burgess Rawson’s national sales were ‘essential service’ leased assets.

There has been a definite flight to quality with buyer interest in these assets increasing substantially since the beginning of the pandemic. Investors recognise the strength of such tenants and almost guaranteed returns on investment. We don’t expect interest in these assets to slow down as we head into the second half of 2021.

  • Yield compression continues as it’s cheap to borrow money

Most of the shifts and trends seen in the commercial property market in Australia in the last 12-18 months are key drivers to the yield compression we are experiencing today.

Most significantly, low interest rates and share market volatility are changing the way people invest their money. With little or no interest earnt on bank cash deposits, investors have been forced off the side lines to invest in either, the share market or property secured under long term tenancies.

  • Shift from residential to commercial property investments

Commercial property currently offers the highest cash flow in Australian real estate. We have facilitated countless sales in the last 12-months with first-time commercial investors as they make the shift away from residential opportunities. There are many benefits of investing in commercial property as opposed to residential property. Some benefits include;

  • Longer term leases (often 5 or 10 years)
  • Substantial and/or brand-name tenants
  • Fixed annual rental increases (often 3% per annum)
  • Higher yields than residential, often twice the return
  • Tenants commonly pay all outgoings as a requirement of their lease including land tax

 

  • Private investment market is the strongest we have witnessed

 

The private investment market up to $25 million is the most active we have seen in 45 years of business. At Burgess Rawson, we have seen an increase in enquiry from private investors of up 30% at least.

The private investment market has matured considerably of late as investors wealth increases in line with capital values of their real estate holdings. This surge in activity is not just driven by seasoned investors upscaling or adding properties to their portfolio’s but also by new first-time investors who have historically invested in residential property. The pandemic has reset their thinking, and many are concluding that quality commercial property is a safe haven to weather uncertain times.

Investors are currently on the hunt for solid investment opportunities, with the commercial property market sitting front and centre supporting a solid economic recovery. If you are wanting to speak with a commercial property expert to enter into the market, or you’re an experienced investor looking to grow your portfolio, the experts at Burgess Rawson can be contacted on 02 9232 6288.

 

By Burgess Rawson Director Simon Staddon

 

About Burgess Rawson

Burgess Rawson is the largest locally owned commercial agency in Australia. Our offices are all owned by the principals in each state providing clients with direct access to decision makers and a highly motivated and stable operation. Our emphasis on long-term relationships is particularly important. Since inception in 1975, we have expanded our operations across Australia, with an interstate network of offices as well as international and regional affiliations. www.burgessrawson.com.au

 

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