Commercial real estate is going from strength to strength in the wake of the pandemic. From vacancy reduction across Australia’s office market to a resurgence in retail to an investor-flooded industrial property market, there is plenty to be excited about in 2022 for those looking to invest in a commercial asset.
Whether you’re a first time commercial real estate investor or you’ve written the book on the investment class, you’ll want to plan ahead if you’re looking to acquire a high-quality commercial asset in 2022.
Here’s what commercial real estate investors can expect in the 12 months ahead.
Australia’s retail industry has bounced back tremendously after traditional stores felt the lull or lack of customers during the long lockdown periods. Retail sales are back to pre-pandemic levels. And with Aussies able to move more freely around their locales, the expectation is for this to continue.
Investors might consider investing in a premises which house essential services, such as supermarkets. Prudent investments could also be found in those sectors which customers have been itching to return to, like shopping malls and gyms.
Office investors panicked during the early months of the pandemic, with questions around the relevance of their commercial asset plaguing their minds as offices shut down and white collar workers migrated to home offices. Pundits speculated this could strangle the life out of the office market.
We’ve since learnt there’s a body of information hiding under this sentiment.
Businesses thrive off the collaborative nature of office premises, with meeting rooms, open floor plans, and shared space. While surveys are showing almost three-quarters of small businesses will consider some form of flexible work arrangement with at least some of their employees (anywhere from one to five days per week), there is no considerable movement of staff out of the office.
Larger companies have allowed its workers to choose whether they want a desk at home or in the office, but this has only changed the needs of those larger occupants, with larger floor plans becoming less desirable.
Investors might look out for premises with smaller floor plate sizes and flexible layout designs. Parking should not be overlooked. We are focused on assets with an abundance of parking space for workers to come and go. Office is still a great investment, as long as employees have convenient access into and out of the building.
Investors could also look to higher-grade assets, as a flight to quality is already occurring across major business precincts in each state. No matter the challenges thrown at office landlords, there is no substitute for offering high-quality office premises to the leasing market.
Industrial real estate has been overlooked by many investors in the past, who prefer the more glamorous alternatives of office and retail property investment. This is now no longer so.
Industrial property is the new diamond of commercial real estate and competition is stiff to find a high-value asset underpinned by a robust occupant.
We’ve never seen such interest in industrial real estate, and the result is a market flooded with both new investors and those looking to expand their existing industrial portfolio. In 2021, demand put significant upward pressure on values, and yields compressed as a result (Sydney and Melbourne yields have compressed 100 basis points and 125 basis points, to 3.75 per cent and 3.50 per cent, respectively).
There is little change expected for 2022.
Industrial yields will likely fall further. According to the Australian Financial Review, “The biggest movers will be Perth and Adelaide, cities where investors looking for better income returns are increasingly turning, with yields contracting by a further 50 basis points to 4.25 per cent.”
Amazingly, Australian industrial real estate still offers better yields than major regions across the globe, so international investment into Australian markets may push back against the expected additional supply with new developments already planned for 2022.
And interestingly, a lack of quality space could likely lead to rental growth for industrial landlords. Our view is that 2022 might see quality premises in relevant locations achieve rental growth for the first time in 10 years.
New Years Resolutions may seem tacky. But knowing the right time for you to make a serious investment in commercial real estate is a sound strategy. If you think 2022 is the right year for you to invest in commercial property, we’d love to help.
To discover how investing alongside us in high-quality commercial assets could secure you a robust retirement and wealthy future, book a meeting with Guy Doggett (Director, Investor Relations) below.
We want to learn more about you. This 30-minute call gives us time to understand your needs, answer your questions, and find out whether our investments are right for you.
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Properties & Pathways is a dynamic commercial property investment firm. We handpick our properties throughout Australia to reduce risk and protect investor return. The strategy works. Our completed syndicates have provided investors an average annualised return of 19%.