Demand for value-add commercial assets and locations that will experience strong population growth will be a key focus for investors in 2023 according to an expert.
Ray White Commercial, Head of Research, Vanessa Rader said she expects private investors to converge on value-add assets in 2023 despite sales volumes remaining subdued and borrowing costs on the rise.
“While many buyer types will retreat, savvy investors will capitalise on increased yields or even vacant assets, albeit at the right price,” Ms Rader said.
“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.”
Ms Rader said she thinks Queensland commercial property will continue to outperform given the strong population growth the state has been experiencing.
“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,” she said.
“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.”
According to Ms Rader, retail assets will also undergo a transformation next year.
“Services will continue to move into our retail strips with uses such as medical becoming more prevalent, together with our growing food appetite,” she said.
“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.”
Ms Rader said markets such as Sydney and Melbourne continue to have a hard time with getting their staff back into the office on a full-time basis which will hurt occupancy levels in the office sector.
“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,” she said.
“This will dampen absorption levels and keep vacancies elevated over the short term as well as hindering rental increases or incentive reduction.”
According to Ms Rader, tourism assets will also see a boost as people continue to travel after many years of government-imposed lockdowns.
And after a strong few years, owner occupiers continue to seek out industrial assets given the lack of supply Ms Rader said.
“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,” she said.
“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.”
Given the critical shortage of homes and commercial property that the current is experiencing, Ms Rader said she expects development 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,” she said.
“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.”
