The Current State of Play Commercial Property Markets Melbourne.

The Economy 

Global economic growth remains subdued, with some volatility on the downside as uncertainty and general negative sentiment remains, primarily around geopolitical tensions. Such uncertainty has the potential for global markets to slide into recessionary thinking. Australia’s growth position is not too dissimilar to G7 countries having slowed itself, however it appears to be gaining some momentum on a stronger export scenario given the lower level of the Australian dollar. We are also benefiting from the likes of China, our major trading partner, which in response to its slowdown, is implementing stimulus measures and thereby increasing appetite for our resources.

Much of Australia’s drag on economic performance has been due primarily to domestic issues, with drought conditions stagnating the agricultural sector and a cyclical end to pricing in housing markets, particularly in NSW and Victoria. Despite continued low levels of unemployment, wages growth still eludes for the most part, and any inflationary stimulus has therefore been difficult to achieve. A lack of inflation coupled with the cyclical economic slowdown is providing further downward pressure on official cash rates that are already at historically low levels. Consumers are cautious about the economy, reflected in deflated results across several consumer confidence indexes. Although there are signs that a rebound in the pricing of the residential housing market is likely, it may take some time before we see the benefits flow through to Australia’s economy given confidence levels.

Victoria’s economic conditions continue to be amongst the strongest in the Country, with key cyclical drivers supporting the diversified and largely non-mining economic base. Robust population growth, driven by overseas and interstate migration continues to support Victorian economic growth, helping explain job growth and the absorption of strong office development completions. It has also provided for substantial public investment in transport and social infrastructure as the Government looks to alleviate the pressures around such strong population growth. Continued population expansion should also provide fundamental demand for housing in the long run. Commercial construction is anticipated to continue its robust fortunes of recent years, with a strong pipeline of both publicly funded building approvals around health and education in addition to a private sector providing mixed use developments around buoyant accommodation and office sectors.

INDUSTRIAL

Melbourne’s industrial market has a diversity of occupants, reflective of the broad Victorian economic base, and remains the largest of all Australia’s capital cities in terms of land stock and built floorspace.  Melbourne’s industrial market is central to Australia’s manufacturing industry which, although diminishing in significance to the national economy, is still a large driver of industrial markets particularly as it evolves from traditional industries such as automotive, clothing and footwear, and into the more niche markets of food and beverage manufacturing. Melbourne also plays a primary role as the distribution centre for the country with the Port of Melbourne being the largest container port in Australia. The sector is supported by high quality transport infrastructure, particularly for road freight.

The industrial property market continues to evolve and mature through increased integration with e-commerce and warehousing and logistics.  Low cost transport helps manufacturers remain competitive despite the ongoing contraction of the Victorian manufacturing industry as a percentage of the State’s total economy however, Melbourne remains the Country’s manufacturing capital.

The emphasis in providing efficiencies through new industrial logistics hubs and facilities, in support of the perceived growth expected in logistics via the e-commerce industry, has seen increased demand in industrially zoned land in recent times. Such demand has been reflected in land prices and is expected to flow through to rents. Significant land banking of industrially zoned parcels has become quite prevalent across Melbourne.

As with other asset classes, Prime grade assets across industrial markets are also experiencing offshore investor demand as international institutions chase a scarce number of investment-grade assets across global property markets. The scarcity of industrial investment-grade assets with long lease expiries is a likely limiting factor for continued high levels of investment and sales volumes. Demand however is expected to remain high over the short term.

The depreciation of the Australian Dollar coupled with historical low interest rates is expected to prolong the high levels of purchaser demand from both local and offshore investors as well as owner occupiers.

Source: Charter Keck