The continued rise in commercial prices has prompted a number of long term owners to sell into the market and they have been rewarded with results that would have been unheard of 2 years ago.
Until recently the strongest demand for commercial property came from developers looking for buildings that could be redeveloped into the booming residential market. While this demand still exists there are fewer properties now available that have the zoning and height limits that would make redevelopment viable.
As a result the sales market is now being led by demand for investment, longer term development and owner occupation. The fact that the leasing market is improving is adding further fuel to already strong demand.
Having seen a significant increase in commercial values over the last 2 years the question now is how much further will they rise?
With interest rates and property yields at historic lows it may well be that prices are close to their peak for the present time and will need rents to really start increasing for further gains to be made.
On the plus side the NSW economy is out-performing most other States. Our low reliance on mining is helping this, as is the strength of the residential market and the Government’s increased spending on infrastructure.
In the residential sector there is a real effort by the authorities to cool the level of demand from investors with many banks announcing higher rates for investment loans and in some cases increased deposits. These borrowing conditions have normally applied to buyers commercial buyers and may lead to some switching of demand from residential towards the higher yields of commercial.
For the present the commercial sales market will remain strong as demand is far higher than the number of properties that are available. Whether prices will continue to rise in the short term is more debatable as yields and interest rates are already at very low levels.
“With interest rates and property yields at historic lows it may well be that
prices are close to their peak for the present time and will need rents to
really start increasing for further gains to be made.”