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Tight supply and return to 'business as usual' drives demand for commercial property

August 1, 2023

Highlights

  • As workplaces return to normal, demand for office and retail space is rising.
  • Industrial property continues to experience high demand, with values expected to rise amid tight supply, leading to near-zero vacancy rates
  • Rising interest rates have impacted demand though cash buyers are still active in the commercial property market, and some properties are selling for more than the asking price.

Leading commercial real estate group Raine & Horne Commercial has released its H2 2023 Commercial Insights Report, detailing the market for commercial property across the Group’s national network.

Commercial Insights notes that as businesses increasingly return to pre-pandemic conditions, demand for retail and office space is recovering. A-grade properties and those with eco-credentials are especially sought after, with older B-grade stock taking longer to lease.

Government policy is also shaping the market. In the ACT, the commercial conveyance duty tax-free threshold has been increased from $1.7 million to $1.8 million effective 1 July 2023. In South Australia, the AUKUS submarine build will help to drive the commercial market backed by strong positive market sentiment.

Infrastructure drives demand

Infrastructure continues to be a key driver of demand for commercial property. Nowhere is this more pronounced than in Sydney’s Western suburbs.

Mr Angus Raine, Executive Chairman, Raine & Horne, said, “The construction of the Western Sydney Airport (formally known as Nancy Bird Walton International Airport) is underpinning demand for commercial property across a broad sweep that extends beyond the airport precinct to Penrith, Liverpool and the Macarthur region centred around Campbelltown.

The commercial market in Perth is also benefitting from the construction of Perth’s Metro Net, Bayswater Train Station, and the $232 million extension of the Mitchell Freeway.

Industrial property shows no signs of slowing

The industrial property sector is enjoying an extended run of robust demand both for sale and lease. A limited supply of new developments is expected to drive values higher.

Mr Raine, said, “The focus on land earmarked for residential property development is undoubtedly essential to relieve a housing shortfall. However, we are seeing very little in the way of new industrial property in the pipeline.

“This is set to drive vacancy rates even lower – and they are already at near-zero levels in key industrial hubs including Liverpool and Campbelltown.”

It is a similar picture in Southeast Queensland, where insufficient land is being made available for development, contributing to a rise in the value of secondary stock. Yet Southeast Queensland is expected to continue attracting interstate and overseas migration leading up to the 2032 Olympics, driving further demand and continuing to put upwards pressure on values in the absence of increased supply.

Properties selling for above asking price

Such is the demand for industrial property, the Raine & Horne network is seeing properties sell for more than their asking price.

Chris Nicholl, General Manager – Head of Commercial Network, Raine & Horne’s Commercial, said, “The team at Raine & Horne Commercial Bankstown recently secured the sale of a rare industrial site in Belmore for $1.1 million above the asking price.

“This speaks volumes about the level of demand for industrial property.”

A full copy of Raine & Horne's Commercial Insights H2 2023 report can be downloaded here.