Australian commercial property is heating up, with retail property in the Gold Coast and Melbourne industrial properties among some of the best value assets available, a new report from DTZ has revealed.
But research director David Green-Morgan says the latest results for the Fair Value Index indicate buyers need to act quickly, with prices set to rise over the next few years and block potential investors out of the market.
The latest Fair Value Index shows Melbourne, Brisbane and Sydney now contain solid industrial assets, Brisbane and Sydney contain premium office properties and the Gold Coast has some of the best value retail assets in the country.
Green-Morgan says the results indicate the commercial property market, which was hit during the financial crisis, has finally hit its stride.
“There is quite a lot of opportunity all around the country and the market is holding up quite well, despite the rise in interest rates which is pushing up bond rates,” he says.
“Commercial property is still outperforming other asset classes. This is what the index shows, that in some assets, you will be receiving good returns if you invest in the right places.”
According to the index, Australia is now listed as a “hot” market, gaining two points since the second quarter. The majority of the markets in Australia are now “hot”, with the Melbourne and Sydney industrial markets pinned as solid investments, undervalued by between 9-12%.
Retail assets in the Gold Coast are also labelled as a hot buy, undervalued by about 9%. Green-Morgan says rental growth in the area is set to be about 3.7% until 2014, providing some solid returns.
The report also lists industrial rents in Melbourne and Perth as likely to outperform other markets in the Asia-Pacific region, with growth for Melbourne pinned at about 4.5% and Perth at just over 3% for the next four years.
Melbourne is also seen as the best market for Prime Industrial properties, with growth between 2010-2014 expected to be at 16%, followed by Perth and Sydney at just over 12%, along with the Gold Coast at just under 12% and Brisbane at 10.5%.
“You’re never quite sure of what’s around the corner, but most economists agree that growth has returned and demand for space is starting to improve. Obviously, the market is not as hot as it was during 2006-07, but it is starting to come back.”
However, Green-Morgan points out buyers need to move quickly – if they wait too long then prices will be too high to realise any substantial gains.
“This is going to be a bigger issue that perhaps any economic turmoil. The more you have to pay in these sectors, you’re going to have a deflating effect there. If you pay a sharp price, the long-term pressure to reach a gain will be much, much harder.”
“On the one hand, it is encouraging that prices are rising, but we are looking at investors here who have no exposure in these markets so it’s not as if they are recycling a portfolio.”
Green-Morgan says investors should explore the market straight away, so that if prices continue to rise, “they will get a long-term increase in value and see good capital growth”.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
