2017 proved to be a steady year for commercial property values, with firm yields and prices high. But, with the era of low interest rates now apparently over, what does 2018 hold?
Impact of rising interest rates
Many commentators are tipping Australia’s interest rate – which has remained at a record low of 1.5% since August 2016 – to rise in 2018. In the commercial property market, higher interest rates tend to equal lower property prices, as yields soften and borrowing money is more expensive for owners. However, higher rates tend to signify a healthier economy, which is associated with a stronger market. This equals more competition and strong potential rental growth.
According to the chief economist of the REA Group, Nerida Conisbee, the industrial property sector will have the highest demand, with online retailers and food manufacturers requiring warehouses and distribution centres.
The entry of Amazon into the Australian market and the sale of Westfield to Unibail-Rodamco could suggest that demand for retail is on its way down, although it’s far too early to say with any certainty.
A combination of falling development site values, office vacancy rates and political turbulence in the UK and the United States mean that Australia continues to look like a good option for commercial property investment.