Commercial Property and the Likely Impact of the Budget

CONCERN OVER HIGH INFLATION is what is causing the RBA to continue raising interest rates.

So the real question is … will the latest Budget be responsible for adding to inflationary pressures?

Anyway, let’s quickly pick apart the critical issues of the latest Budget – as far as they relate to Commercial property.

In Summary …

The $14.6 billion cost-of-living support items in the Budget (relating to Energy and Medicare) … are mainly pitched at low-middle-income households. These have been structured so as to help reduce measured inflation during 2023/24.

While the fiscal profile of the Budget will probably add around 0.1% to inflation over the next two years, this is not considered enough to be material.

So on balance, there should be little (if any) inflationary damage done by the Budget. 

However, in order to claim a so-called “Surplus”, Labor has used some rather dodgy accounting practices, with regard to the Future Fund.

Even so … compared to projections last October, the Budget will be taking more out of the economy than it’s putting back in … which should minimise the need for the RBA to increase rates much further. 

The real secret lies in whether the planned $15 billion savings from the NDIS will actually eventuate over the next few years. And whether the ACTU’s 7% wage push can be curbed.

Likely Budget Impact

The Office market has mainly been affected by the work-from-home trend. Plus, a slowdown return to the traditional workplace – particularly in Victoria, where firms have suffered from the longest lockdown period of all.

As leases expire, many firms are looking to downgrade their space requirements – to reflect the trend towards working only 2 to 3 days a week in the Office.

While this may prove to be temporary, it is having a significant effect on rentals and tenant incentives at the moment.

Whereas, the Industrial market is experiencing its lowest vacancy rate in years – down to around 0.8% across Melbourne.

With a shortage of supply and demand being high … you are starting to see a growing number of pre-commitments – both to buy and lease off the plan. 

Bottom line: 

While the past 12 months have been rather messy and confusing, you get the feeling the worst may now be behind us.

Inflation seems to have peaked … China is moving to lift its trade embargo … unemployment is that an all-time low … immigration has resumed, to help underpin economic growth and … the housing market appears to have bottomed out.

Hopefully, this spark in consumer confidence will start to flow through into Commercial property – so you can once again start planning ahead, with some degree of certainty.

Best wishes …