Demand for commercial property stay strong

Wednesday 6 February 2019

Investor demand for commercial property is expected to remain largely unchanged, for 2019, according to commercial agency Burgess Rawson.

Despite challenges in the second half of 2018 that included a reluctance by banks to lend, further federal government instability and a looming election, demand for quality commercial assets would continue, said Burgess Rawson director Shaun Venables.

Plus, a continuation of record-low interest rates and a likely easing of lending criteria should entice more investors, the agency said.

“For many people who read alarmist property articles predicting bubbles and doomsday events, it is easy to get caught up in negativity, lock up shop and wait for the storm to pass,” Mr Venables said.

“The problem is that much of the commentary is generalised and ignores the fact that there are sectors within sectors which are each experiencing very different conditions.”

While there was a softening in demand for some popular asset classes last year, other sectors, such as supermarket and fuel and convenience investments, went from strength to strength.

“We saw appetite soften slightly for childcare through a perceived oversupply of centres, and demand for some forms of retail pulled back over concerns about the effects of online shopping,” Mr Venables said.

But with yields for childcare centres experiencing a ‘correction’ following a record number of sales in recent years, Burgess Rawson is confident demand will largely re-establish itself this year.

“Childcare centres will continue to be sought after because the key fundamentals are still in place.

“Strong tenants, secure, long leases, guaranteed rental growth and modern, purpose-built facilities which tenants are required to maintain mean landlords have very little to worry about,” he said.

A misguided fear of the impact of electric cars led to some pundits to incorrectly tip that fuel and convenience outlets would fall in popularity with investors, but these concerns were proven wrong.

Mr Venables noted that the petrol retailers of today are distinct from yesteryear’s service stations, with present operators far less dependent on the sale of fuel and more reliant on turnover of fast food and groceries from what are effectively mini supermarkets.

With continued reporting of falling house prices, decreasing demand for residential apartments and the volatility of the share market, investors can be forgiven for feeling nervous about where to place their money, he said.

“But there are several commercial property sectors that are largely unfazed by general market fluctuations.

“These include medical centres, supermarkets, childcare centres plus fuel and convenience outlets, which all provide an essential service that we can’t do without if we want to work, eat, live and drive,” Mr Venables said.

“Most people prefer to see and touch their hard-earned investments, and bricks-and-mortar commercial assets provide exactly that.”

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Originally published in the Herald Sun