Investors need to keep sharp eye on commercial property opportunities


Jonathan Street

The beginning of a recovery in residential property prices should not deflect investors or self-managed super funds (SMSF) trustees from considering the long-term benefits of investing in commercial property, says Jonathan Street, CEO of the specialist commercial property lender, Thinktank.

“Falling residential property prices over the past couple of years has been a good reminder to investors and SMSF trustees that housing has its risks, and that commercial property, in terms of yield, security, and capital gain, has a place in a balanced investment strategy.

“it’s worth remembering that even at these lower prices for residential housing, yields are typically far less than what the commercial sector consistently offers.”

Street highlights the fact that office property remains in strong demand, especially in Sydney and Melbourne, where vacancy rates are still low.

“Although there has been a slight rise in vacancy rates in Melbourne, up from 3.2 per cent to 3.3 per cent, while in Sydney they fell from 4.1 per cent to 3.7 per cent as reported by the Property Council of Australia in their July Office Market Report, the outlook remains very positive, especially for Melbourne.

“The respected consultancy BIS Oxford Economics is predicting a Melbourne ‘office boom’ will continue until 2024, and other market analysts have similar views on the strength of the Sydney market.

“In Melbourne, it’s estimated that the vacancy rate will remain below five per cent for the next five years, and, if this proves to be the case, then rents are likely to grow by 30 to 40 per cent over this period and values to rise by 25 per cent.

“it’s not just the CBD in Melbourne. Demand has found its way into the suburbs where the estimated vacancy rate has fallen to 4.6 per cent.

“Other mainland capital cities are displaying positive signs, with yields tightening in most locations even where the economic fundamentals, such as the resource-driven Perth and Brisbane, remain under some pressure.”

Street says that it’s this generally bullish outlook for office space and other commercial assets such as industrial property that investors and SMSF trustees should bear in mind when considering a property related investment.

“There’s a myriad of options to invest in the commercial space, whether it be AREITS, unlisted property trusts, property securities funds, property syndicates or mortgage funds such as our Income and High Yield trusts. Always invest with caution but the fundamentals and relative yield offered by commercial remain accommodative.”

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