With solid growth across the world’s biggest and smallest economies, retail spending and business investment are picking up the performance of the commercial property market.
A recent AMP Capital insight piece shed light on the sector finding that since 2010 commercial property returns have averaged over 11 per cent, and that rising rent, particularly in office property, will keep yields high.
Comparatively, with weak bond yields, the share and bond market is expected to deliver returns of 4-6 per cent before tax, well below the 7-9 return of the past five years. That’s all compared to the 2-4 per cent return from residential property, the darling of this decade’s property boom.
Therefore, it’s safe to say commercial property will continue to do well in revenue return, particularly if commercial property managers and landlords make the best of the market ahead. Additionally, staying on top of what’s happening in the industry – i.e. familiarising themselves with their competitors’ growth and discovering new ways to innovate – will place commercial property managers in a strong position to gain an advantage.
AMP’s Shane Oliver points to office space in south-eastern Australia as the most attractive and best performing commercial real estate in the country.
Low vacancy rates, around 6 per cent, are seeing rents rise strongly. The simple truth is that, typically, when economic times are good so is commercial property by default, and given Australia’s disparate cyclical economies each part of the country sees good times at different times so there’s always a window in one of the capitals.
Take advantage of the upward trends
Identifying market trends will put any commercial property manager and landlord in good stead. And as traditional brick and mortar retail is affected by the rise of e-commerce business and digitisation, a business with an eye to the future can detect the rise of non-traditional working spaces as a growth area. Businesses are now using old commercial car parks as logistics hubs, which is surfacing a new set of asset classes as we move forward toward 2019.
Having the ability to identify these market trends and then reposition your current portfolio to meet these needs can help increase tenant demand and potentially lead to increased revenue for your landlords.
Further examples of this are co-working and shared spaces that cater to the millennial demographic, and businesses shifting their thinking in line with this growth sector will be best placed to take advantage of the population and economic growth the next decade will bring.
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