5 Commercial Property Predictions for 2023

New year = New commercial property predictions

Here are our 5 commercial property predictions for the year:

1. Private Investors converge on value-add assets

Sales volumes are expected to remain subdued throughout 2023 given the increased cost of finance. While many buyer types will retreat, savvy investors will capitalise on increased yields or even vacant assets, albeit at the right price. Those buyers who see development upside in an asset or willing to reposition or repurpose an asset to capitalise on future income and capital returns will be rewarded. Remembering commercial property markets historically have shown much volatility, however over the longer term can yield an investor quality returns.

2. Owner occupiers continue to seek out industrial assets

The low vacancy situation across the Australian industrial market will continue into 2023 given the limited development pipeline, this will put pressure on rents to grow and create uncertainty for small businesses. The continued need for a range of industrial assets from small units through to large distribution centres will see occupiers take greater control of their accommodation needs despite growing financing costs and actively seek out assets to suit their current or growing business needs, sheltering from possible increases in rents.

3. Government stimulus will grow demand for some assets

Childcare and aged care are two asset classes which enjoy high levels of subsidies for both operators and consumers. This aids in keeping occupancy levels high which means some certainty in returns over the longer term. These assets are typically held in high regard by investors seeking well maintained facilities which can hedge against possible changes to the cost of finance. Despite the elevated demand for these assets, location will remain key to ensure the long term prosperity of the asset and its stable, ongoing income stream.

4. WFH continues to pressure our major office markets

Markets such as Sydney and Melbourne continue to have a hard time with engaging their staff back into the office on a full time basis. Many employers accepting this change in working conditions given the difficulty in attracting talent and altering the way in which they interact with their office accommodation. This will dampen absorption levels and keep vacancies elevated over the short term as well as hindering rental increases or incentive reduction. Sentiment shifts across the workforce will continue as COVID-19 cases re-emerge across the community adding more setbacks to returning to work in some locations, in particular those which have suffered multiple lockdowns in the past. Confidence in suburban office markets or those in growth zones which have benefited from population gains are likely to remain high keeping occupancy rates up and future prospects sound.

5. The transformation of the retail asset class

This market has been in an evolution phase well before COVID-19, online trade changing the way in which consumers interact with retail assets. Services will continue to move into our retail strips with uses such as medical becoming more prevalent, together with our growing food appetite. While centres will continue to evolve, offering more entertainment options outside of the traditional uses, think ninja warrior and e-sports! Food will continue to be an attractor however uses like childcare and co-working office space may take up some larger holes if and when vacations occur.

What are yours?