OVERVIEW
The past year marks a significant turning point for investment markets.
In the first half of the year economic turmoil in Europe and a slowdown in China dominated markets and commercial property was not immune. A slowdown in activity could be seen in all our commercial property markets.
July 2012 marked a turning point for a range of reasons – interest rates were well and truly on their way down, the European Central Bank and the US Federal Reserve both announced measures designed to restore confidence and stabilise the situations they faced, an orderly transition of leadership occurred in China, economic growth has resumed an upward trajectory in China, Obama was returned as President of the United States and the All Industrials component of the Australian sharemarket is up over 30%!
Nationally, over $10 billion of commercial property has been transacted and over 2 million square metres of industrial and office space has been reported leased which gives us confidence that the markets are operating even if it is a tough slog.
The next year holds reasons for greater optimism – the yields on offer in investment markets are more compelling as returns on fixed interest products dwindle.
Commercial property yields in particular look very attractive. The Australian economy is being rebalanced as growth in mining softens.
This means housing and retail should start to lift with positive knock on effects to industrial and office markets.
As consumer confidence continues to rise, so should business confidence. As profit margins are restored, business decision making should gain momentum.
The Federal and some State governments will move into election mode and could be expected to provide some stimulus to parts of the economy providing further momentum to investment markets.
China and the United States are forecast to contribute positively to Australia’s economic outlook but Europe is forecast to remain a drag.
INDUSTRIAL
Savills recorded approximately $2 billion worth of industrial transactions in the 12 months to December 2012, down from $2.53 billion in the previous year, and down on the five year average of $2.4 billion.
In the 12 months to December 2012, 129 properties were sold, down from the previous 12 months total of 183, and down on the five year average of 180.
The 'Private Investor' purchaser category was the most active in the investment market for the year ended December 2012, purchasing 25 percent of stock reported sold. Similarly, the Private Investor category recorded the most transactions (43).
In the past five years Private Investors have purchased just over $4 billion of industrial property greater than $5 million. Private Investors have clearly been attracted to the comparatively high investment yields, the simple investment parameters of industrial – single tenant, simple building, long lease, low capital expenditure requirements.
Given the outlook for falling yields in cash and fixed interest investments, Savills expect ongoing investment demand from private investors for industrial property.
Tony Crabb is the National Head of Research at Savills Australia.
Savills' Research & Consultancy team offers a range of updates, information and analysis covering office, retail, industrial and residential sectors with a focus on economic outlooks for short and long-term real estate investment.
