Business confidence influencing property markets

Business confidence influencing property markets

Posted on Monday, December 07 2015 at 2:58 PM

Current business and consumer confidence will continue to have a positive effect on Australian property into 2016, according to Property Outlook, the 2016 forecast report by Colliers International.

“We’ve experienced a sustained increase in business confidence over the
past 12 months,” CEO Australia and New Zealand at Colliers International John
Kenny says. “This confidence is having a positive impact across the property
sector, and this optimism is starting to flow through to several of our
occupier markets, as businesses become more confident in leasing office space.”

The Sydney CBD office market has experienced improving conditions since
early 2015, with a significant decline in vacancy over the year. That run’s
expected to continue to spread to other markets with Melbourne CBD office,
Sydney industrial and national neighbourhood and large format centres likely to
experience particularly strong demand conditions in the year ahead.

Despite this return of occupiers across the country, there’ll still be
pockets where this doesn’t lead to rental growth. In some markets, elevated
levels of supply are offsetting the strong growth in tenant demand. Similarly,
those locations affected by parts of the economy experiencing a slowdown, such
as those markets dependent on the mining sector, will be the under-performers
in 2016. 

Consumer confidence levels, which have remained elevated for some time,
are another contributing factor in the overall strong performance of the
property sector. 

“The strong residential housing market, increasing consumer confidence
and the lower Australian dollar are all factors that have contributed to the
current state of our economy,” national director of research Nerida Conisbee
says.  “Right now, Australian interest
rates remain stable at their historic low of 2 per cent. Nevertheless, the
Reserve Bank continues to suggest that it’s not averse to cutting rates and is
waiting on key economic releases post-Christmas. For now, although GDP growth
remains below average, business surveys suggest that the services sector will
continue to improve, which will support the Victorian and New South Wales
economies in particular. 

“All of these factors continue to make Australia a very attractive destination
for offshore capital, and this flood of both local and offshore activity will
continue to hold the property sector in good stead for 2016.”

Investment in Australian commercial property in 2015 is set to reach $35
billion, of which domestic purchasers account for around half. Australian
investors are now increasingly moving offshore, spending approximately $5
billion overseas in 2015. That’s more than double the 2014 level but
significantly lower than the almost $28 billion in 2007, when Australian
investors were the third highest offshore investors in the world.

“Very few Australian groups are entering international markets at this
stage, with around 90 per cent of this year’s offshore acquisition activity
made by two groups – Australian Super and Lend Lease,” Conisbee says. 

According to the report, next year this growth in Australian groups
investing offshore will continue, although the types of investors in the market
will be different from the previous cycle. In 2007, the most dominant purchasers
were Australian institutions. In the current cycle, these institutions are
increasingly being funded by offshore groups, looking to partner with them
because of their expertise in Australian property. The dominant groups going
offshore will continue to be Australian superannuation funds as they seek to
diversify their investment into direct property. Finding the scale necessary in
Australia is increasingly difficult and offshore markets provide a significant
pool in which to invest.

At a regional level, the focus remains firmly on China and the continued
effect it has on all aspects of property. From the significant capital flows
that are investing in property across the region to the Chinese banks that are
starting to make their mark on occupier markets and the flow of tourists
increasingly dominating tourist spending and hotel usage. India is also
considered to be a major player next year but not so much from the outflow of
capital but rather the gradual opening of that country to investment and the opportunities
for regional investors that will create.

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