Top commercial property predictions for 2023
Ray White Commercial Head of Research Vanessa Rader has identified eight trends that are likely to play out across Australia’s commercial property markets this year.
1. Investors will favour value-add asset
With interest rates rising, some investors will leave the market this year – but not all. "Those buyers who see development upside in an asset or are willing to reposition or repurpose an asset to capitalise on future income and capital returns will be rewarded," according to Ms Rader.
2. More buyers will follow the population
Ms Rader said strong interstate population flows into Queensland and Western Australia had led to increased investment activity in those states, and had a positive impact on vacancy rates and yields. "Savvy investors will follow these population movements to aid in keeping vacancies low and income return more favourable," she said.
3. The retail sector will continue evolving
The rise of ecommerce has changed Australia's retail landscape. Ms Rader said this transformation will continue in 2023, with retail strips attracting more service-based businesses (such as medical centres) and shopping centres playing host to more alternative tenants (such as co-working spaces).
4. Smaller officer markets will outperform larger ones
The Sydney and Melbourne CBD markets are likely to be affected by workers' unwillingness to return to the office on a full-time basis. "This will dampen absorption levels and keep vacancies elevated over the short term as well as hindering rental increases or incentive reduction," Ms Rader said. However, in markets that have benefited from population gains, like Perth, Gold Coast and the Sunshine Coast, confidence levels should remain high, “keeping occupancy rates up and future prospects sound".
5. Domestic tourism will rebound
More Australians will shift from international to domestic travel, due to uncertainties around health, safety and the economy, according to Ms Rader. As a result, hotel occupancy levels and average daily room rates will increase. "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," she said.
6. More businesses will become owner-occupiers
Low vacancy rates and rising rents will encourage more small businesses to buy their premises. "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," Ms Rader said.
7. Investors will be attracted to government-backed sectors
Ms Rader said investors would be attracted to childcare and aged care assets, because governments provide "high levels of subsidies" for both owners and customers. "This aids in keeping occupancy levels high, which means some certainty in returns over the longer term," she said.
8. The development pipeline will grow
Work will start on a range of new residential and industrial developments in 2023, according to Ms Rader. "While construction costs are expected to remain high, the underlying demand for accommodation will see more cranes appear on the skyline," she said.
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