Beyond city borders

It’s not just city real estate that’s on an upward trajectory. Regional commercial property is enjoying a renaissance as people seek COVID-inspired tree and sea changes. Retail property has been a beneficiary.

“In the past year, we have seen major hubs such as Geelong experience strong commercial lending enquiry, fuelled by population growth, the shift to work from home, rising regional employment opportunities, housing affordability and proximity to Melbourne,” says Green.

Turning to retail more broadly, in recent years the sector has suffered a rise in vacancy rates and commensurate decline in rents in some of the larger retail centres. But it’s expected the market will recover as pandemic restrictions continue to ease and investors recognise opportunities to profit from retail and hospitality real estate.

“Over the past 18 months, many of our customers have acquired assets at tangible discounts, due to the level of uncertainty that prevailed earlier in the pandemic. More recently, this has led to significant growth in asset values within neighbourhood and large format retail sectors. Our retail portfolio has grown in the past year and many of the centres acquired are regional and tend to have a repositioning opportunity which our customers are not frightened to take on,” Green says.

Although it may seem counterintuitive given widespread stay-at-home orders, Lachlan MacGillivray, managing director of retail capital markets, Asia Pacific, Colliers, notes the pandemic has had a broadly positive impact on retail investment activity.

“While industrial and office assets have seen further cap rate compression throughout this period, this has not been the case for larger retail centres, driven mainly by COVID-impacted provisioning. With the strong retail sales performance witnessed over the last 12 months, we have seen retail become even more attractive on the relative value front. Retail owners and investors have been able to capitalise on the challenges of the last two years and ensure their assets are well-positioned for future success.”

Industrial assets the new black

The shift to online shopping is supporting demand for industrial and logistics real estate, with record increases in leasing floor space in 2021, according to Westpac’s figures.

Demand is being driven by major global funds, local listed and unlisted funds and private developers. “Very few new entrants are coming into the sector; it’s all about owners who were already in the market before the pandemic expanding their portfolios,” says Green

Gavin Bishop, managing director, industrial, Colliers notes the phenomenal growth the Australian industrial and logistics sector has recorded over the past two years has been supported by macroeconomic tailwinds that have underpinned both occupier and investment demand.

“COVID led to a sharp rise in online retail sales as consumers were forced to shop online and in turn, occupier take-up has reached record levels over the past two years. Despite record investment of $16 billion in the sector last year, demand continues to far outstrip the availability of assets for sale, which has placed downward pressure on yields.”

As the economy shifts to a new, post-pandemic operating normal it’s clear that investment and confidence, broadly in the sector, remains high. The weight of capital looking across all sectors isn’t wavering, creating more interest in secondary and regional markets. Plus, the impact of expected rate increases is seemingly offset by the expectation of a robust economic landing and corporate investment, which will see a pathway to increasing occupancy demand over the coming years.

Ultimately, on balance, the future seems positive for continued activity in the sector.

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