After a tumultuous 2020 we thought we would kick off our first blog of 2021 with an outlook on the year ahead and what trends we expect to see throughout this year.
This is by no means an extensive list of expected trends however, will cover some of the key areas we expect to impact the commercial property market.
Following are 5 key trends that we expect to help shape the market this year and beyond.
1. LIVING WITH COVID-19
We have all been living with the pandemic for enough time that it is now, in many ways, a normal part of our daily lives. This adjustment to our new norm helps to overcome the initial fear of the unknown that we all felt in the early stages of the virus spreading. With the abatement of fear, life has forged on, business has innovated, many businesses have thrived, and others have pivoted to adapt to new market conditions.
Locally, we have seen new businesses emerge, some businesses expand, and others relocate to our region for various reasons, such as expansion into a new market or downsizing from Sydney to provide local employees a work hub away from a home office. We expect to see this continue, along with strong activity from:
- A broad range of investors.
- Smaller office users (leasing space rather than working from home).
- Industrial users continuing to create demand in both sales and leasing markets.
- Continued development activity, especially in the industrial sector.
Overall, we expect to see strong activity across a range of market sectors which will strengthen overall consumer confidence and continue to drive our market.
2. LOW INTEREST RATES CONTINUE – CONSUMER CONFIDENCE GROWS
Everyone knows we’ve had continued historically low interest rates for an extended time. With the current pandemic ongoing, and the damage it has done to many economies around the globe (our own included), it is no surprise that economists are expecting interest rates to stay low for a fair while to come. While many business sectors are performing very well, some big industries have taken an absolute pummelling (think airlines, international tourism, etc), causing an uncertain economy and an environment very unlikely to be conducive to interest rate rises.
Considering the above comments, while not a ground breaking prediction, we can feel comfortable in expecting that low rate interest rates will be the norm for a while to come.
Interestingly, and in what seems almost paradoxical, we also have consumer confidence at a ten (10) year high. Surely nobody was tipping that only a short few months ago. However, when you consider that we, as consumers, have moved past our initial fear and now found a new normal in how we are living with covid-19, that creates a new belief that we can adapt, survive and thrive, even through such incredible conditions. When the masses figure out they can handle a new challenge, confidence naturally grows.
When we combine continued low interest rates with high consumer confidence, it’s reasonable to expect that we could see a continued upward trend in property demand and therefore prices.
3. YIELDS CONTINUE TO TIGHTEN
Official interest rates continuing to remain low, means anyone leaving cash in the bank will be getting little to no return. Real estate has long been seen as a stable investment vehicle and provides the benefit of not only cash flow (the return/yield on your investment) but also capital growth.
Core markets around Sydney have already tightened and we can see the Central Coast continuing to follow this trend, as people look for better returns from the Greater Sydney region. Commercial properties in particular will remain popular with investors due to the ability to have annual rental escalations either tied to inflation or increase by fixed percentage meaning you should have rental growth you can count on.
For more information on yields follow the link below to view our previous blog ‘Commercial yields – what you need to know before investing’.
4. INDUSTRIAL RATES GROW
While we have already seen great growth in the industrial market in the past few years, we believe there is still room to grow for a number of reasons. The main reasons being:
- Our prices are comparatively cheap when looking at similar markets such as Western Sydney.
- With interest rates remaining low, it is more attractive financially to pay off a loan than to pay rent.
- We still have high levels of demand yet diminishing availability of industrial units.
- With the NorthConnex tunnel now complete, travel for warehousing and logistics users (in particular) is now more efficient shortening travel times between the Central Coast and Sydney markets.
Of less obvious consideration, but still an important factor is the volume of residents relocating from Sydney to the Central Coast. COVID-19 had the benefit of waking business up to flexible working arrangements and this has allowed many residents to consider relocating to the Coast as a more viable option when a daily commute to the city is no longer essential.
The longer term repercussions of many more people relocating to the Coast, is higher demand for existing and new services as well as many residents relocating their businesses to the Central Coast. This increase in activity inevitably creates upward pressure on property prices.
5. IMPACT FROM THE RESIDENTIAL BOOM
For those who may not have been paying attention to the residential property market on the Central Coast, 2020 did not turn out to be the year many expected and many predicted.
Despite a small dip in market values early through the pandemic, that trend did not continue for very long. There was a fairly swift rebound in values, followed by some pretty aggressive growth, with some suburbs on the Coast achieving growth in values of nearly 20%.
While that is astounding growth in such a turbulent year, it does not represent the whole picture of growth in the property market across the country. The capital cities around the country varied in growth and had falls, recovery and growth in varying cycles, but on the whole, the property market across Australia grew by about 3% through 2020, which is still incredible when you consider the year that 2020 was.
Perhaps this shouldn’t be a huge surprise, though. Afterall, residential property is still the number one form of investment in Australia, with a collective value of approximately $7.3 Trillion as at the end of 2020, according to the Australian Bureau of Statistics.
If you consider how much equity this rise in property values creates across the board, coupled with our insatiable appetite for property investment and continued low interest rates, it’s not difficult to see that we have some great ingredients for continued growth in property values.
The growth in the residential property market has a flow on effect for the commercial property market, as investors look to reinvest with the equity created from their existing property. Commercial real estate is an attractive option for many investors, looking for both the reliable investment medium of real estate along with the better returns that are typical of commercial property, and will attract both novice and experienced investors, creating extra demand across the market.
As we’ve already noted in this blog, one of the drivers of growth in the residential property market on the Central Coast has been the number of people relocating from Sydney. Just one of the positive outcomes from this, for the commercial property market, is that a percentage of these people will also relocate their businesses to the Central Coast, creating further demand in the commercial market and therefore upward pressure on values.
Looking at the added demand in our local commercial property market, from both new investors and new owner-occupiers, we can see how the increase in overall demand (accounting for strong existing local demand) will have a positive impact on commercial property values moving forward.