Investment Property in Australia

As the residential investment property market in Australia slows pace and it gets harder to achieve strong short term gains from real estate, so investors seeking further opportunity from investment property in Australia naturally turn their attentions to the commercial market.

A report out today from the leading business research and forecasting group in Australia reveals that it’s the commercial property market in Australia where investors are going to be reaping significant yields and capital gains over the next few years, which suggests that commercial property investment activity in Australia is about to intensify.

BIS Shrapnel is the number one provider of industry research, analysis and forecasting services in Australia and they have been actively examining the commercial real estate sector movement across major Australian cities to determine where the next boom will occur for investment property in Australia.

The company’s research clearly explains and demonstrates how the property market cycle works exactly the same for commercial property as it does for residential property…basically, where the supply and demand dynamic slips out of balance profits can be made and lost!

Currently the commercial property markets in the likes of Brisbane and Perth are booming – this is because oversupply of property a number of years ago led to constructors failing to start new property developments.  Now the majority of vacant grade A and B office space has been let due to a natural increase in demand for space fuelled at least in Perth by a resources investment boom taking place in Western Australia, and because no new space is available the demand is far outstripping supply and average gross effective rents are up.

When considering the cycle of commercial investment property in Australia, this cycle can be observed and plotted based on the principals of the market movements in Brisbane where in just three years incentives offered to companies who committed to long leases have disappeared and vacancy rates have dropped to their lowest ever recorded figure.  Rents payable for grade A space are up almost 60%, rents payable for grade B space are up over 75%.  Perth is about a year behind Brisbane and Melbourne is a good few months behind Perth according to BIS Shrapnel because it has taken longer in these markets for development to stop, demand to increase and lease incentives to drop off.

Property investors looking for a window of opportunity should therefore look closely at prime cities with strong commercial property interest where there has been a restricted amount of development due to oversupply in the last few years, where natural demand is squeezing vacancy rates and where it’s likely that demand is going to tip the balance and create a scenario where the commercial investment property market is damn hot!

And finally, just to explain the cyclic action of the commercial property market in Australia right now…because overdevelopment back in the 1980’s resulted in saturation in the 1990’s, strong incentives, low rental rates and high vacancy levels were recorded throughout the late 1990’s and almost to date.  There was no way the property developers who had had their fingers burned were going to then commit to further development and so only now when they are finally reaping a return will they consider developing again and it will take many years before commercial projects move from conception to completion and during that time there will be the potential for a boom in the commercial property market for investors who time and position their investment commitment correctly.