Understanding the Commercial Markets

You have seen strong growth and investor activity over the past 12 months; but neither of these have been very consistent — whether you look across the nation, or within each of the Commercial sectors.

Let’s take a quick look at each sector; and also consider the likely impact that further interest rate rises may have on your Investment Strategy.

*1. Retail*

Consumer spending has held up remarkably well, given the prolonged increase in fuel prices and rising interest rates. But unlike high fuel prices, the recent interest rate rise is permanent — with the prospect of more in the pipeline.

p(leadin). As such, you can expect …

* Rentals to be basically flat for the foreseeable future — unless you have a lease with built-in fixed increases.

* Buyer demand should remain reasonably strong, due to the funds flowing from residential property and the stockmarket — causing prices to continue to climb.

* Tenant demand to continue within niche or destination centres.

*2. Industrial*

With so much manufacturing going off-shore, the demand for traditional “factory space” has switched to strategically-located warehousing.

As an investor in Industrial Property, you will now need to focus upon road net works and your tenant profile.

p(leadin). Moving forward, you can expect …

* Manufacturing rentals and prices to fall — unless the property can be readily adapted for use as warehousing.
* Strong tenant demand for well-located warehouses; as well as continued buyer demand from Investors — both large and small.

*3. Offices*

The real growth seems to have been the suburban strata Office market.

More and more people are exiting the high-powered corporate life — wanting to work closer to home. As you can appreciate, this is partly due to lifestyle; partly the cost & time of travel; and partly due to current technology no longer making a CBD location mandatory.

p(leadin). What you are seeing is …

* Strong tenant demand for well-conceived, strata developments — where the total occupancy costs are generally only 70% to 80% of comparable CBD office space.

* Traditional residential Investors switching to strata offices — where they can buy in a similar $250,000 to $400,000 price bracket. And the real plus being … that these tenants actually pay the outgoings.

Most investors would have already factored in the recent 0.25% rise delivered by the RBA. However, further increases will start to slow things down in the run-up to the expected 2007/2008 peak. And the extent of the final decline for Offices will vary from State to State.


When there is a sustained decline in Retail activity, you can expect Industrial activity to follow some 6 to 9 months later. However, according to research by BIS Shrapnel, any movements in interest rates by themselves, appear to have little or no effect upon Office markets.

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