Asian Thrust will Prove Good for
Australian Commercial Property

Following the global financial crisis, the extent of trade imbalances has eased somewhat between Advanced Western economies and the Emerging Asian economies.

The gap between China’s huge current-account surpluses and America is out-of-control deficits may have temporarily narrowed. But the IMF believes the massive disparity will return, as world economic activity improves.

The ups and downs of exchange rates and capital movements are seen by the US and the Western economies as a method of ensuring a proper allocation of resources.

Whereas, it seems Asian countries view exchange rate movements as an annoying distraction from controlled expansion of their “home” economies. And amassing foreign currencies is seen as the best protection against a re-occurrence of the 1997 Asian financial crisis.

How will this affect Commercial Property Investment?

China’s stated goal of 7% growth over the next five years (plus its dependence upon coal, iron ore, LNG and nickel) will provide enormous economic upside for Australia.

On this basis, China’s contribution to global economic output will rival that of the European Union within five years; and even the US, within the next 10 years.

While Australia’s mining boom may help to create a “two-speed economy” … the flow-through benefits will be felt by everyone — to a greater or lesser extent.

Clearly, the growing mining (and mining-related) sector will need to be physically accommodated.

Similarly, the support services and businesses like … accountants, lawyers and the merchant bankers … will all need to engage more staff. And that means we’ll need to construct more office buildings to house them.

Bottom Line: Until we do that (which can take between 3 to 5 years), rentals for both CBD and suburban Office space will continue to escalate those capital cities where the vacancy rates currently sit at around 7%, or below.

Therefore, right now, that means you should be looking to snap up something in Melbourne, Sydney or Perth. And then, ride the current growth cycle through to 2018.


Is the End of the World Near?

Black Swan Events
With Australia having weathered the global financial crisis, we are now having to cope with the potential after-effects of:

  • The European sovereign debt crisis;
  • The earthquake & tsunami in Japan, with the subsequent nuclear fallout;
  • The Libyan crisis; and locally …
  • Extensive flooding in Queensland and Victoria.

Given all of these so-called “Black Swan” events occurring so close together, certain pundits appear to be jumping to the wrong conclusions.

They are ignoring the fundamentals; and simply encouraging a knee-jerk reaction — driven more by sentiment and (supposedly) an attempt to avoid risk.

Right now, many investment decisions are being based upon incomplete, and often incorrect, information. And this is also being inflamed by sensational headlines in the media.

The Tragedies are Real

Without question, the human pain and suffering in these disasters is beyond a full comprehension — whether it be in Japan, NZ, Libya, Queensland or Victoria.

However, history would suggest the adverse economic effects will be comparatively small and temporary.

In all these circumstances, there may be some short-term decline. But the subsequent rebuilding efforts tend to provide an economic boost, well beyond what would have otherwise occurred.

You only have to look at the Victorian bushfire tragedy of several years ago. As truly devastating as that was … the Victorian economy now leads the rest of Australia in so many areas — both economically and in its relative population growth, compared with other states.

With Japan, its $200 billion rebuilding program will consume an enormous volume of steel — and therefore, create huge demand for Australian iron ore and coking coal. Not to mention, the design and construction opportunities for Australian firms.

Bottom Line: Just step back, and view the fundamentals clearly.

While China remains an important influence, the recent disasters in New Zealand and Japan will also actually impact very favourably upon the Australian economy AND the Commercial property market.

Your competitive advantage will be found in buying Commercial property … while others seem to be frozen to the spot.