Optimism Is in the Air as Commercial Property Sees a Strong Start To 2021, But What’s Causing This?
There is optimism in the air around the commercial property sector, and those within the industry can feel it. After a year, that was hectic to say the least, 2021 is heading in a positive direction with an already strong start.
So, what is causing such a strong start to the year within commercial property? While there is never one singular answer, many factors have been identified and contributed to a solid first few months.
The post-COVID climate within Australia definitely supercharged commercial property. Interest rates are also historically low, which means that cash is cheap, another contributing factor. The current low interest rate environment has already created a space where investors are looking for more traditional ‘bricks & mortar’ investments; the perfect indication that confidence has returned.
This optimism began late last year as a result of lockdowns, especially in Melbourne. Last year investors delayed purchases until there was some clarity on the timeline and stability of the virus and its corresponding restrictions. So, the sector took a huge hit during this period, and once the low was reached the only way to go was up.
As a result, at the end of 2020 and into the beginning of 2021 investors began to become interested once again and this amplified purchasing and investment. High-quality commercial assets are now scarce due to increased demand. All of these factors have contributed to the tightening of the market and have resulted in yield compression for commercial property and is the reason that commercial property is currently far outweighing the return on investment in other property sectors.
Commercial real estate is providing exceptional returns, without the same level of risk that is currently being seen in other investment areas, hence the rise in positive outlooks surrounding the sector. A key market indicator- leasing – has also picked up, which is encouraging investment, most coming from Australian companies as international operations sit tight, due to head office uncertainty, that’s not to say foreign investment isn’t a huge contributor to positive outlooks.
Mainly foreign investment coming back to Australia has been a huge contributing factor, among the economic factors, such as low interest rates. As foreign buyers become more active, a trend that is expected to continue throughout the year, Australia’s commercial real estate market sales will lead the way, including the bullish first quarter seen by Sydney office sales reaching $4.5 billion in transactions.
Looking ahead, the expectation is that Melbourne’s commercial property market, which was very quiet in 2020 due to lockdowns, to dramatically improve through 2021 driven by increased optimism, and a lot of money already set in Sydney, is keen to get set in Victoria. With optimism leading the way, adding commercial property to your investment portfolio has been recognised as one of the best ways to diversify and bring in solid capital growth and cash flow in 2021.
It’s expected that throughout 2021, lifestyle region commercial spaces and suburban retail and suburban office spaces, will be the best performing areas. A mix of foreign interest, low interest rates, and lack of restrictions impacting business across Australia, meant the commercial property sector excelled in the beginning of 2021 and is expected to continue this way through the next two quarters of the year.