Taking Stock of Commercial Property

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As I mentioned in a recent email to some Clients, it’s been surprising how few quality properties have been forced onto the market — given the difficulties caused by current global turmoil.

You’ve heard so much lately as to how bad things are. But let’s undertake a quick comparison for Australia — between 1990 and now.

h2. How Today’s Economy Differs from 1990

Back then:

* Commercial Interest Rates of 15% pa climbed to 18% pa.

Today:

* Commercial Interest Rates are around 6% pa and falling.

Back then:

* 6 new foreign banking licenses were granted;
* Our 4 major Banks were struggling with heavy losses;
* CBD Office vacancy rates shot up to around 20%; and
* We had double-digit Unemployment, Inflation and Interest.

Today:

* The Banking sector has now settled and is strong;
* CBD Office vacancy rates are under 6% Australia-wide;
* Cash Rates & Inflation are around 4% and falling;
* Super Fund contributions are continuing to underpin much of the Commercial property sales activity.

h2. How do we Compare Globally?

Compared to most countries, Australia’s economy is in good shape. And our Commercial property prices are unlikely to plunge as they have in both the United Kingdom and United States.

Apart from Brisbane and Perth, you actually saw far less overheating in Australia — so our markets have less to fall. Even so, the two mining States will clearly be more affected.

A recent ANZ report found that newspaper job ads in WA plunged by nearly 23% during December; and 10.5% in Queensland.

However, both the Government and RBA have made it clear that the’ll do whatver is required to safeguard Australia’s economic wellbeing.

h2. Areas of Concern

Office Buliding

Office Buliding

Probably the biggest threat for top-end Commercial property is the retreat of the overseas banks — for when refinancing falls due, in the coming months.

UBS estimates foreign lenders are owed some $16 billion by Australian real estate trusts (REITs).

And there have been estimates of up to $75 billion of foreign lending to Commercial property — which will need to be refinanced over the next two years.

So while, that may not directly affect the “under $5 million” market … there will be a flow-on effect as the Trusts and Developers struggle to refinance their current holdings.

h2. And the Solution …

Supposedly, the RuddBank will fix all of this. But it now seems certain misgivings are brewing; and enabling legislation will also need to be passed through a rather contrary Senate. So, this solution is not yet a ‘done deal’.

Meanwhile, I’m still endeavouring to uncover some distressed but quality properties — for those of you who had indicated (before Christmas) a readiness to start buying up now.

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