November 2023 :: Trends and Insights
Trends that have been seen by Realcommercial for the year 2022-2023
The impact of rising interest rates on the commercial property market, key trends driving the industrial, office and retail sectors, and the future of the commercial market for the remainder of 2023
Today, I want to share some insights on the latest economic and industry trends in real estate. Recently, we hosted a webinar with Ann Flattery, Chief Economist at REA Group, who presented some compelling data. Here are the highlights.
Industrial Sales Trends
In 2021, we saw an unprecedented surge in industrial sales, hitting record numbers. While 2022 also remained strong, the first half of the financial year 2023 witnessed a significant drop, marking the lowest sales in the past decade. This decline correlates with multiple interest rate hikes during this period.
Impact on Commercial Asset Types
Our focus today is on industrial assets. The data reveals a decrease in inquiries to buy industrial properties by 11%, which aligns with the rising interest rates. However, inquiries to lease industrial properties have increased, reflecting a growing demand for leasing and pushing lease prices up.
Factors Driving Market Changes
Several factors contribute to the current market dynamics:
- Higher Lending Rates and Harder Access to Credit: The increased interest rates have made borrowing more challenging.
- Low Stock Availability: The supply of industrial properties is at an all-time low, with vacancy rates hitting record lows.
- Rising Industrial Rents: Industrial rents grew at the fastest rate on record in 2022 and continue to rise in 2023.
- Growth in E-commerce and Local Manufacturing: The surge in e-commerce and a revival in local manufacturing have fueled demand.
- Increased Goods Holding Due to Freight Uncertainties: Importers are holding more goods locally due to uncertainties in the freight and delivery sectors.
Offshore and Interstate Investment Trends
There's a notable shift in offshore buyers' preferences. In 2019, only 9% of offshore investments were in industrial properties, compared to 42% in recent years. Office spaces, which dominated with over 60% in previous years, have seen a relative decline. Additionally, we're observing more interstate buyers, especially from Sydney and other parts of the country, looking to invest in Melbourne due to its comparative stock availability.
Online Spending and Long-term Effects of COVID-19
The COVID-19 pandemic significantly boosted online spending, fast-forwarding the market by five years. Despite this growth, our online spending percentage remains below that of similar countries. The pandemic's long-term effect has solidified the trend towards increased online purchasing.
