A surge in new businesses starting up in Australia could lead to increased demand for commercial property, according to an expert.
Ray White Commercial Head of Research, Vanessa Rader, said over the past three years there had been a significant increase in new business starts across the country, driven by demand in certain sectors and people losing their jobs during Covid.
She said in the past 12 months, 406,365 new businesses were registered, bringing the total number of Australian businesses to 2,589,873.
“NSW has the largest number of businesses, however, only grew 0.9 per cent this period,” Ms Rader said.
“Victoria, despite being home to the second highest number of business, saw losses this year of 0.9 per cent, with Queensland the most active in attracting new business, up 2.3 per cent, followed by the Northern Territory at two per cent.”
Ms Rader said that while it’s no surprise Queensland has led the charge, given its robust population growth over the past few years, the industries most active align with the changing demographic.
“Healthcare and social assistance businesses were the greatest segment of the market to grow business counts, up 6.1 per cent,” she said.
“This strong growth is in line with the strong demand for healthcare assets, be it hospitals, medical centres and suites and integrated facilities.
“Fuelling continued demand across the industrial sector has been the growth in transport, postal, and warehousing businesses.
“While low vacancies remain across most industrial markets, the requirement for distribution and storage facilities is not expected to wane, however, a reduction in manufacturing businesses may assist in opening up some industrial assets.”
According to Ms Rader, despite the woes of many office markets across the country, new business starts in the professional sectors, including finance, insurance and real estate, may see the office market turn a corner.
“The high vacancy environment will take some time to play through, keeping returns subdued and investor demand levels dampened until substantial price corrections are achieved,” she said.
“Encouraging new business starts in the white collar, professional arena, however, the shift in workplace behaviours around working from home the greater stumbling block for this asset class.”
At the same time, retail continues to be a difficult business and asset class, Ms Rader said.
“With rising interest rates, retail trade has seen some reduction and the tightening of belts has seen business counts reduce, down 2.5 per cent across the retail and wholesale trade category,” she said.
“Retail assets are also grappling with the changing consumer sentiment towards bricks and mortar retail, while income returns remain stable this uncertainty has seen limited positivity in capital returns over the last ten years.”
Ms Rader said that the change in business activity marries well with the recent MSCI returns data for commercial assets across the country.
“Demand remains for investors in the healthcare and industrial sectors looking to take advantage of the long-term capital gains associated with these asset classes,” she said.
“Strong and stable income returns are also a feature of these asset classes, while the mismatch between demand and supply to occupy has ensured income certainty.
“Over the past 10 years, we have seen annual total returns for industrial and healthcare at 14.2 per cent and 13.8 per cent respectively ahead of both retail and office assets.”
Ms Rader said after strong turnover in recent years, increased interest rates dampened investment demand, however, for those in the market, the healthcare and industrial sectors represent good buying given their limited supply and strong occupancies
“Over the last year returns have favoured these assets up 3.5 per cent for healthcare and 6.9 per cent for industrial, with retail total returns remaining positive given its income stability at 2.8 per cent while office has started its fall, recording -2.2 per cent this period,” she said.
