There is no denying rent is among the best indicators of a commercial property’s value — far more so than a residential property market. Commercial real estate generally (but not always) delivers lower capital growth but higher rental yields, whereas housing does the reverse.
Other economic factors will also impact commercial values, but as the trajectory of rents over time directly reflects demand, they will provide you with one of the most accurate pictures of the market whether your aim is to buy, sell or lease.
The problem is, most information published on commercial rent is based solely on prime real estate. The small to medium-sized sectors are ignored in favour of the big end of town and its gleaming office towers. This means a large proportion of market participants are receiving a distorted view of rental asking prices — which then impacts on their ability to make the best decisions.
A clear market picture can only be captured from focusing on data across the board. The Commercial Property Guide Asking Price Index does this by tracking weekly rental movements to then display movements over the past three months creating a unique, up-to-date analysis.
As for how they’re looking now? Here’s a simple way to compare value across the nation’s capitals, and see how the asking price per square metre differs:
Asking prices in capital cities: Source: Commercial Property Guide
Three major markets account for the lion’s share of Australia’s commercial sector — Melbourne, Sydney and Brisbane — followed by Perth and Adelaide. As expected, all experienced downturns following March 2020’s COVID-19 driven lockdowns and restrictions. But, within months, hope reappeared when asking rents started climbing as early as July.
Since the start of 2021, rental movements are rising faster than the corresponding pre-pandemic period last year.
Movement of rents nationally. Source: Commercial Property Guide
The rate of rent increases in this market has been declining since the mid-2017 boom, the exception being a spike following the 2019 election that was experienced across all capital city commercial markets.
After last year’s rollercoaster ride, asking rents in Sydney’s commercial market have been rising across all asset classes.
The Sunshine State capital’s commercial sectors were hit hardest of all by the pandemic as COVID-19 sent rents plunging and kept them depressed far longer than other major markets.
Thankfully moderate to strong recovery is occurring across all asset classes except industrial.
Commercial rents are increasing faster in Melbourne than in Sydney. Following some of the longest and most restrictive periods of lockdown, the Asking Price Index is showing asking rents in Melbourne rising about 2% per quarter.
All five major capital city markets are experiencing growth in retail rents. Brisbane and Adelaide are leading the charge with the most rapid rises since September 2020, with asking rents shooting up just over 4% in Brisbane and just under this level in Adelaide.
Sydney, Melbourne and Perth are showing a more modest pattern, with increases in this time period of between .5% to 1%.
Leasing incentives granted to keep embattled retailers from closing their doors and leaving premises vacant is partially behind the lower rate of increases, according to industry observers.
Ben Tremellen, partner at national leasing specialists Retail Realm, said tenants in Melbourne’s Bourke Street Mall precinct recently received breaks on rent of around 20% while those on the Swanston Street strip were given as much as 30%.
“The market reacted quickly to keep people trading,” Tremellen said.
Retail rents, state-by-state. Source: Commercial Property Guide
All five major markets are trending up except in Brisbane. Asking rents demanded by the city’s industrial properties have nosedived almost 3% in as many months.
Adelaide is also showing a steep recovery with rental increases of around 2%.
Vacancies across industrial have tightened as business owners take advantage of low interest rates, which have made it more cost effective to invest in their premises rather than rent. Industrial assets have also risen in popularity due to the pandemic-driven surge in e-commerce and need for logistics warehousing.
Industrial rents, state-by-state. Source: Commercial Property Guide
This sector is experiencing one of the strongest recoveries of all asset classes in every capital city as companies continue to push for workers to return to the office, not only to boost their own productivity but that of the national economy. The asset class has further been boosted by the fact more companies are setting up offices in suburban hubs rather than prime CBD office towers.
Sydney and Melbourne traditionally see the greatest swings in office rents. However, in the last three months, the asking rent in metro Sydney, Melbourne and Adelaide for offices have shot up around 3%, followed by Perth and Brisbane with an average 1% rise.
Office rents, state-by-state. Source: Commercial Property Guide
Simon Rose is chief executive of independent property portal Commercial Property Guide, and CEO of Rose Technology Group.
