What are the experts predicting for Australia's commercial property market this year?

Analysts have laid down their predictions for Australia’s commercial property market for the first two-quarters of the next financial year and the outlook is good.

Over the next few months, we’ll outline the social, political and financial trends and themes that will shape the commercial market over the next 12 months.

In June 2017, some of Australia’s foremost researchers and forecasters have provided a telling snapshot of what we can expect to see throughout the next financial year.

PEOPLE POWER

Demographer Bernard Salt says the results of the 2016 census confirm what many analysts already know.

“Aussie society has shifted this decade, with more Asians and more Indians resulting in growth in Sydney and Melbourne,” Salt says.

It’s a trend that is reinforcing demand for knowledge workers across health and education sectors and subsequently driving demand for office space, he says.

Sydney and Melbourne will retain their number one and two spots respectively in global growth expectations, with Melbourne experiencing its strongest levels since 1978 and likely to stay that way.

The evolution in regional centres is set to continue, particularly in Parramatta in Sydney and Chadstone and Footscray in Melbourne, as the campaigns to create multiple CBDs gain momentum.

JLL national director, head of research Andrew Ballantyne says population growth is the “key multiplier for the economy and commercial property”.

“We are certainly seeing a strong relationship between population growth and the take up of office space within each market.”

Slowing population rates in Queensland and South Australia are expected to stabilise as each economy starts to lift.

SOCIAL SWINGS

Workplace configuration becomes a major focus as occupiers adapt to lower revenue growth.  

“Niche small business startups are looking at how they can enter the market more efficiently,” CBRE senior director, head of research Stephen McNabb says.

“Co-working spaces offer a cooperative, collaborative environment without the costs of being a sole occupier.”

The trend is most evident in Melbourne and Sydney but also in Adelaide where about 29 new co-working facilities have been established.

But even as sharing economies change the way people work, Salt says the supposed trend of people working from home is being debunked as the unprecedented demand for office space leads to “overspill markets” in Melbourne’s Docklands, Barangaroo in Sydney and Southbank in Brisbane.

ECONOMIC TRENDS

Australia’s south-eastern seaboard still boasts the strongest economy and will remain that way, experts predict. But Queensland will begin to claw back ground on Sydney and Melbourne, with Perth a few years behind.

Big pension funds and sovereign wealth funds around the world are increasing

their exposure to real estate and infrastructure.

“There is more capital being allocated to the sector,” Ballantyne says.  

Meanwhile, North American pension funds are eager to increase their footprint in the Asia Pacific.

“There are pretty strong, structured rationales for investment in this region,” Ballantyne says.

Infrastructure spending across all levels of government – including Sydney’s Metro North West and the underground projects in Melbourne’s CBD - will likely have little short-term impact on state economies but long-term is likely to prove a huge boost for growth corridors.

POLITICAL PRESSURES

Experts say the impact of key political shifts and the rollout of policy are unlikely to impact the commercial markets, at least in the first half of the financial year.

“A commitment to infrastructure spending will help address the deficit that the nation has, particularly in NSW, and is very positive for commercial property,” Ballantyne says. 

“In the short-term it’s about the continuation of those projects and hopefully some of those projects identified receiving funding.’’

And while the impact of US President Donald Trump’s first year in office on the international community is yet to play out, analysts say Australia can still take advantage of capital flows.

Many believed the Trump era would herald a stronger growth outlook globally - interest rates have risen in the US, but will Australia follow suit?

“It’s difficult to say,” McNabb says. “You wouldn’t expect in a hurry because the economy is well below trend and inflation is only just moving into the RBA target band.”

“They won’t lift rates. They won’t need to lift rates in that environment. We are sufficiently de-coupled from the US environment in the short-term.”

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