Expert predicts surge in Australian commercial property values. Population growth, high construction costs, and potential rate cuts create opportunities across various sectors.
A veteran real estate analyst is urging investors to seize opportunities in commercial property, predicting a surge in values across various sectors.
CBRE’s Head of Research, Sameer Chopra, believes it’s an “amazing time to buy real estate” despite market uncertainties.
He said rapid population growth, high construction costs, and forecasts for significant interest rate cuts will provide a strong tailwind to the sector.
Mr Chopra points to Australia’s recent population boom, with over one million new arrivals in three years, as a major catalyst for demand across all property types. This influx is expected to necessitate substantial commercial development, including logistics spaces, retail centres, offices, hotels, and hospitals.
“We are feeling this demand in the residential market, but it’s going to spread its wings,” Mr Chopra said.
The analyst highlights that construction costs have risen by 30 per cent, making it challenging to build new assets at current valuations. This dynamic is expected to increase the value of existing properties, particularly those near new infrastructure developments.
Mr Chopra predicts a significant easing cycle in interest rates, predicting between eight to ten cuts by 2026. This could lower the cash rate to between 1.85 and 2.35 per cent.
“We need to change the conversation from, ‘Are they going to cut interest rates this year?’ to ‘How many interest rate cuts will there be in the cycle?’,” he said.
While some experts consider Mr Chopra’s interest rate forecast optimistic, there is agreement that commercial property investment opportunities exist for selective buyers.
Mr Chopra remains bullish on various commercial sectors, noting that CBD office visitation has rebounded to 75 per cent of pre-pandemic levels and expects return-to-office concerns to dissipate by next year.
In retail, Mr Chopra has turned positive following significant rent resets during the pandemic. He cites positive re-leasing spreads and low vacancy rates as encouraging signs for the sector.
The student accommodation market also presents significant growth potential, according to Mr Chopra.
He suggests the Australian market could expand tenfold before reaching the bed-to-student ratios seen in countries like the US and UK.
Further questions
What factors are driving the predicted surge in commercial property values?
Several factors are driving the predicted surge in commercial property values, including rapid population growth, high construction costs, and forecasted interest rate cuts. Australia's recent population boom, with over one million new arrivals in three years, is creating demand across all property types. Additionally, construction costs have risen by 30%, making existing properties more valuable. Experts also predict significant interest rate cuts, potentially lowering the cash rate to between 1.85 and 2.35 per cent by 2026.
How is the Australian commercial real estate market expected to evolve in the coming years?
The Australian commercial real estate market is poised for significant growth and evolution. Experts predict increased demand across various sectors, including logistics, retail, offices, hotels, and hospitals, driven by population growth and infrastructure development. The student accommodation market is expected to expand dramatically, potentially growing tenfold. CBD office occupancy is rebounding, and the retail sector is showing positive signs with low vacancy rates and improving lease terms. These trends suggest a dynamic and potentially lucrative market for investors in the coming years.
What opportunities exist in the Australian commercial property market for investors?
Investors in the Australian commercial property market have numerous opportunities across various sectors. The logistics sector is seeing increased demand due to population growth. Retail properties are becoming attractive following rent resets during the pandemic. The student accommodation market offers significant growth potential. Existing properties, especially those near new infrastructure developments, are expected to increase in value due to high construction costs. Selective buyers can find opportunities in CBD offices as return-to-office trends normalize. Overall, the market presents diverse options for investors willing to analyze sector-specific trends and long-term growth prospects.
How might interest rate changes affect commercial real estate investments in Australia?
Interest rate changes are expected to have a significant impact on commercial real estate investments in Australia. Experts predict a substantial easing cycle, with forecasts of eight to ten rate cuts by 2026. This could lower the cash rate to between 1.85 and 2.35 per cent. Lower interest rates typically make real estate investments more attractive, as they can increase property values and reduce borrowing costs for investors. However, it's important for investors to consider how different commercial property sectors might respond to these changes and to factor in potential economic shifts that could accompany significant rate cuts.
What are the key considerations for investing in Australian commercial real estate in the current market?
When investing in Australian commercial real estate in the current market, key considerations include: understanding sector-specific trends (e.g., rebounding CBD office occupancy, growing student accommodation demand); analyzing the impact of population growth on different property types; assessing the effects of high construction costs on existing property values; considering the potential impact of forecasted interest rate cuts; evaluating properties near new infrastructure developments; and staying informed about economic factors influencing the market. Investors should also consider the long-term potential of different sectors and locations, as well as their own investment goals and risk tolerance.
This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
