Last year was a strong year for commercial property in Melbourne and across Australia. 2018 saw strong job growth across the country and a low unemployment rate at only 5%. As a result, commercial real estate remained strong (especially compared to the residential market) and we expect this to continue.
So, what trends are on the horizon for 2019?
1. Vacancy rates will remain low
Vacancy rates in many office markets are at a ten-year low, with the Property Council of Australia reporting that Melbourne CBD recorded the lowest vacancy in a decade in July last year. Rates are even starting to fall in cities where they have traditionally remained high, such as Brisbane or Perth, driven down by tenants competing for limited space and a rise in demand for larger office space.
This movement means rental growth for building owners and investors, which is set to remain high for 2019.
2. Retail continues to reshape
2018 saw dramatic shifts in investor sentiment towards retail, despite it being a historically stable choice. Clicks continue to overtake bricks with the rise of online shopping and as a nation we are spending less money in stores than we used to. This decline could also be contributing to the dip in residential market with shoppers spending less as their assets decrease in value.
As such, it was unsurprising that retail occupancy declined in 2018 and this is set to continue this year. Retail property owners are advised to adjust to the shifting market and expect lower rents for the foreseeable future. It’s also worth considering how you can add value for your tenants.
A structural shift is afoot in retail, but so far there has been little impact on yields. Our recommendation for owner occupiers and investors alike is to consider the changing market and how you can respond. Should you consider finding a reputable long-term occupier instead of taking on tenants that are only looking to fill the space for a short time, for example?
3. Build-to-rent booms
Historically, build-to-rent properties haven’t been popular in Australia compared with the rest of the world. The conservative and heavily regulated banking sector has been reluctant to lend and support this type of asset but build-to-rent is the second largest real estate investment class and 2019 looks to be the year that we catch up.
Last year saw high-profile build-to-rent projects being announced, such as the proposed 9 Moore Street development in Canberra, and we’re expecting more commercial property owners and developers will take an interest in 2019.
Contact us today on 03 9654 2311 for more advice on commercial property strategy in Melbourne.
4. Demand for industrial on the up
As the landscape for retail space is shifting, demand for industrial is on the up. The e-commerce boom has resulted in strong rental growth in the sector, not just in the outer suburbs, but also in inner city areas where retailers are looking for more, larger, warehousing solutions.
According to the Department of Employment’s 2015 employment predications, job growth across Australia is expected to rise in 2019 which is good news for owners of both office and industrial property.