You have seen strong growth and investor activity over the past 12 months; but neither of these have been very consistent — whether you look across the nation, or within each of the Commercial sectors.
Let’s take a quick look at each sector; and also consider the likely impact that further interest rate rises may have on your Investment Strategy.
Consumer spending has held up remarkably well, given the prolonged increase in fuel prices and rising interest rates. But unlike high fuel prices, the recent interest rate rise is permanent — with the prospect of more in the pipeline.
p(leadin). As such, you can expect …
* Rentals to be basically flat for the foreseeable future — unless you have a lease with built-in fixed increases.
* Buyer demand should remain reasonably strong, due to the funds flowing from residential property and the stockmarket — causing prices to continue to climb.
* Tenant demand to continue within niche or destination centres.
With so much manufacturing going off-shore, the demand for traditional “factory space” has switched to strategically-located warehousing.
As an investor in Industrial Property, you will now need to focus upon road net works and your tenant profile.
p(leadin). Moving forward, you can expect …
* Manufacturing rentals and prices to fall — unless the property can be readily adapted for use as warehousing.
* Strong tenant demand for well-located warehouses; as well as continued buyer demand from Investors — both large and small.
The real growth seems to have been the suburban strata Office market.
More and more people are exiting the high-powered corporate life — wanting to work closer to home. As you can appreciate, this is partly due to lifestyle; partly the cost & time of travel; and partly due to current technology no longer making a CBD location mandatory.
p(leadin). What you are seeing is …
* Strong tenant demand for well-conceived, strata developments — where the total occupancy costs are generally only 70% to 80% of comparable CBD office space.
* Traditional residential Investors switching to strata offices — where they can buy in a similar $250,000 to $400,000 price bracket. And the real plus being … that these tenants actually pay the outgoings.
Most investors would have already factored in the recent 0.25% rise delivered by the RBA. However, further increases will start to slow things down in the run-up to the expected 2007/2008 peak. And the extent of the final decline for Offices will vary from State to State.
When there is a sustained decline in Retail activity, you can expect Industrial activity to follow some 6 to 9 months later. However, according to research by BIS Shrapnel, any movements in interest rates by themselves, appear to have little or no effect upon Office markets.