Australia’s Commercial Property Market Set for Major Reversal in 2023

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A major shift is expected to occur in Australia’s commercial property market mid 2023, with weaker values and strong rent growth due to tight vacancy rates, according to CBRE’s Pacific Real Estate Market Outlook. Michael Gerrity’s article in World Property Journal indicates that lower levels of new supply and rising construction costs will drive a “rent-a-demic” in the industrial and residential markets. CBRE forecasts apartment rents to grow by about 30% over five years in major capital city markets, with 2023 residential apartment construction likely to be around 45% below the 2017 peak. Industrial and logistics sectors are also expected to experience high single-digit rental growth in most Australian markets in 2023.

“Inner city and CBD locations are benefiting from a confluence of returning workers, international students, tourists and consumers craving buzz,” said Sameer Chopra, Head of Research, Pacific for CBRE. “We expect weaker values and strong rent growth, with tight vacancy rates likely to lead to a ‘rent-a-demic’ in the industrial and residential markets.”

In a separate article, Damien Collins discusses three trends shaping commercial property investment opportunities in 2023. These trends include value-add strategies to hedge against inflation, the appeal of non-discretionary sectors, and counter-cyclical opportunities driving renewed interest in the office market. Collins highlights the importance of nuanced asset selection and management strategies to manage risks and identify sectors poised to perform both in the short and long term.

“The key for investors looking to access these opportunities will be building the right level of diversification into their portfolio to increase the possibility of outperformance regardless of economic headwinds,” Collins advises.

As the commercial property market undergoes significant changes, investors will need to stay agile and adapt their strategies accordingly. A focus on diversification and a keen eye for upcoming trends will be essential for success in the coming years.

References:

Gerrity, M. (2023). A Major Reversal is Coming to Australia’s Commercial Property Markets in 2023. World Property Journal. Retrieved from https://www.worldpropertyjournal.com/real-estate-news/australia/sydney-real-estate-news/australia-commercial-property-report-2023-cbre-pacific-real-estate-market-outlook-report-2023-12662.php

Collins, D. (2023). The trends shaping commercial property investment opportunities in 2023. Property Observer. Retrieved from https://www.propertyobserver.com.au/forward-planning/investment-strategy/126559-the-trends-shaping-commercial-property-investment-opportunities-in-2023.html