Property assets in “beds and sheds” sectors, which include tourism, boarding houses, blocks of units and industrial assets, are set to perform strongly in 2024, according to an expert.
Ray White Commercial Western Sydney Managing Director Peter Vines said the current housing crisis had increased demand for affordable accommodation, while industrial assets will continue to perform well next year.
“In 2024, the positive industrial landscape will remain given the fundamental lack of zoned, serviced, industrial land and continued requirement to occupy stock,” Mr Vines said.
“While yields need to move upward in response to the rising cost of finance, and tenant demand will soften this year, rental growth will continue albeit at a lesser rate in 2024.”
He said 2023 had been a unique year for the commercial property market, with all asset classes encountering difficulties.
According to Mr Vines, the dramatic increase in the cost of finance had hit asset values and yield returns.
“Most asset types have seen capital depreciation however industrial and tourism assets have overall experienced positive capital returns,” he said.
Mr Vines said higher interest rates would continue to add pressure, but when rates officially peak, he expects prices will get another leg up.
He said higher rates will likely mean some owners will be forced to sell in the short term.
“Owners will be looking to sell their properties before falling into receivership sales to maintain control of their property and trying to sell for the best price,” he said.
“This is driving up the demand for good deals and excess stock across the commercial property market.”
He said higher construction costs, reduced revenues and soaring interest rates had put unprecedented pressure on the commercial property market in NSW, leading to increased demand for the restructuring of property services.
“Labour constraints are unlikely to improve given priority over infrastructure and housing projects,” he said.
“Infrastructure in NSW and QLD in the lead up to the Olympics in 2032 will also pull people from other developments.”
Mr Vines said bureaucracy would continue to stand in the way of development opportunities and believes we’ll see reduced expectations of industrial development and vibrancy in time for the 2026 opening of Western Sydney airport.
“Realistically that isn’t going to happen in the next 3 years as zoning is not sorted, cost of construction is also very high,” he said.
Mr Vines said that those investors that can hold until 2025, are likely to thrive.
“As soon as we see interest rates hold and eventually come back down, commercial property values will look to grow again,” he said.
