COMMERCIAL INVESTMENT STILL WINNING OVER THE LONG TERM
Coming off a two year period of high sales volumes and compressed yields , the Australian commercial property market has already shown signs of decreased investment activity and yield correction off the back of rising interest rates . During these last few years we saw an abundance of new players enter the market , capitalising on the cheap and available finance , from smaller first time private buyers through to larger syndicates and offshore groups . Those buyers who looked to diversify their portfolio with the expectation of continued strong capital growth may be feeling the pinch now interest rates have risen to their highest rate in nine years . Inversely , those who are content with steady income returns in the hope of longer-term gains are well placed to ride this wave of volatility which historically commercial property has moved in .
Office
The office market was one of the hardest hit during COVID-19 . The move to work from home saw many businesses reconsider their accommodation needs - either relocating , reducing or vacating their office premises . As a result , office vacancies across the country have shown an increase putting pressure on rents and capital values . Despite the change in occupancy and returns , the increased demand to purchase commercial properties saw some buyers move up the risk curve and consider office assets despite the uncertain market . This resulted in yield compression and capital appreciation despite the ongoing reduction in income return . As we enter this phase of increased financing costs , the spotlight has shone on this mismatch , and reductions in capital returns have started to emerge .
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