Is commercial property investment out of reach for smaller punters? Think again.

Residential property investment is a bit of a national pastime for Australians – more than two million Australians own at least one investment property. In fact, CoreLogic estimates, the overall value of residential real estate across Australia to be $6.5 trillion across 9.6 million dwellings. As an asset class, housing is now worth more than three times the value of superannuation funds across the country ($2.0 trillion) and more than four times the value of Australian listed stocks ($1.5 trillion). It is further estimated that investors own 27% of Australian dwelling stock by number and 24% by value, while about 47% of the value of new mortgage originations are for residential investments which provide the vast majority of rental housing across Australia.

That is an enormous amount of investment capital and economic activity, driven largely by Mum and Dad investors. But many residential property are tentative about commercial real estate investment and feel that it is outside their capacity to participate in the sector.

However, the reality is that a savvy commercial real estate investment is within the reach of many residential investors.

Commercial real estate market, realcommercial.com.au, notes that while the two markets are very different and building a strong commercial property portfolio can be challenging and presents a different risk profile to residential investment, the wide range of price points and potential locations means that commercial investment is feasible for many.

Commercial real estate has many benefits – portfolio diversification, tax effective ownership structures, depreciation advantages, locked in annual rent increases, tenants pay outgoings and diverse price points. There are also some challenges – finance terms tend to be stricter, there are usually larger gaps between tenancies, there is greater exposure to economic cycles, repairs and maintenance can be expensive and commercial properties are harder to sell.

If you think you might be in the market for a commercial real estate investment, there are some key nuances that you should have your head around.

  1. The tenant

The quality and commercial viability of your tenant is critical. Ultimately you want a tenant that is well matched with the property with respect to location, is operating in a strong sector with good long term prospects and is performing well. Acquiring a property with an existing tenant is also desirable.

  1. The lease

Commercial leases are generally longer than residential leases and actually underpin the value of the property. Ensuring the lease conditions are right and taking strong expert and legal advice is critical to getting the most out of your commercial investment.

  1. Economic conditions

Commercial tenants are more exposed to economic and trade volatility. Demand for products and services can be fickle and matching your property with the right sectors is critical.

  1. Location

Location affects value and it affects the type of property you are looking for. Taking a broader view of location also provides a much wider range of price points to consider for similar types of property.

  1. Planning and infrastructure

Local and state government planning and regulation, potential infrastructure developments and location of supportive infrastructure are all important. Consider, for example, the impact on both tenants and building owners from developments such as Sydney’s light rail project, which has seen numerous businesses close down while construction was ongoing.

  1. The property

The property you invest in needs to be suited to the businesses you are hoping to attract, needs to be in good basic condition and needs to be at a comparable price point to the market.

South-east Melbourne commercial property outlook for 2020

As we near the end of a year which has continued to see lowering interest rates and ongoing population influx into Greater Melbourne, it is timely to consider what will be some of the important trends influencing the commercial real estate market in south-east Melbourne in 2020.

Is location still king?

It’s the age-old real estate investment mantra – location, location, location. But what does that mean for commercial real estate in a city like Melbourne? Globally, the reality is that having a CBD office location is no longer what it used to be. In this modern world of technology and high quality digital communication, commercial tenants – businesses with employees – are looking for ways in which they can attract and retain the best talent. And that no longer means expecting employees to spend an hour or more commuting to work on a crowded bus, train or tram, or battling peak hour traffic. Employers are looking for opportunities to create business ecosystems for staff – combining ease of commute with pleasant locations and flexible work spaces, close to good amenities and with high quality technological facilities. https://www2.deloitte.com/content/dam/insights/us/articles/5190_commercial-real-estate-outlook/DI_Commercial-real-estate-outlook.pdf

That means that many commercial office tenants are looking for locations such as Melbourne’s south-east to provide a different experience for employees.

Population and economic growth

Melbourne has Australia’s strongest population growth, including welcoming about 35% of all overseas migrants to Australia. While many of those internal and overseas migrants might end up working in the CBD, most of them reside in Melbourne’s suburbs, including the south-east. And that means more local business requiring retail and restaurant real estate, for example. With a robust economy and strong jobs growth, this trend is not likely to abate and that bodes well for the commercial market in the south-east. Melbourne is also one of the ten fastest growing cities in the developed world. https://propertyupdate.com.au/property-predictions-for-2021-revealed/.

Infrastructure and transport

The Victorian government’s infrastructure development agenda is in full swing. However there are question marks about whether it is targeted to the right places, such as south-east Melbourne, to generate increased supply of industrial land supported by effective road and rail transport, water, sewage and power infrastructure. Currently there are about 360 hectares of undeveloped, zoned industrial land in the south-east which is likely to come on stream over the next 36 months. https://www.commercialrealestate.com.au/news/industrial-feature-land-shortages-901095/. There is also significant competition for that land which has seen prices for newly available serviced land increase by nearly double over the past two years.

CBD pressure

Melbourne’s CBD has experienced unprecedented commercial office occupation rates over the past few years. Despite that, yields have been compressed although capital gains have grown, keeping total returns above 10%. This is expected to continue in the short term. However, there is  nearly 600,000 square metres of space expected to come on stream in the Melbourne CBD over the next few years. This will put pressure on both yields and capital growth and is also likely to see vacancy rates increase substantially to around 8%.

All that suggests that now might be the time to consider investing in suburban Melbourne commercial real estate. https://www.afr.com/property/commercial/commercial-property-markets-set-for-double-digit-returns-in-2020-20191118-p53bo2

 

 

 

Population growth in Australia’s suburbs influencing commercial real estate markets

Australia’s main capital cities are experiencing unprecedented population growth and Melbourne’s outer suburbs are the fastest growing regions in Australia. This growth is set to drive Australia’s real estate markets over the coming years. While the implications for residential real estate are already becoming apparent, there are emerging positive trends for the commercial real estate markets in these regions and Melbourne’s south-east is.

On the residential side of the coin, job opportunities, available and affordable real estate and improving transport infrastructure, including public transport, are major drivers. However, on the commercial side of the coin the factors are a little more complex.

The first signs relate to Melbourne’s city fringe suburbs such as Richmond and Cremorne, where commercial rents have nearly doubled in five years.

Drivers for the shift from CBD to CBD fringe and now into more suburban locations is being driven by a diverse range of factors, including rapid population growth which is leading to increased business activity, combined with a desire by employers to improve employee work-life balance. This is manifest in shorter employee commutes and access to increasingly sophisticated staff amenity in suburban locations, such as shopping and food.

Additionally, there is a widening gap in rentals as the CBD office occupation costs increase. Another major driver is improved information technology infrastructure.

With its rapid population growth from both overseas and internal migration, buoyed by Australia’s strongest state economy and a massive state government infrastructure development agenda, Melbourne is expected to have the largest workforce in Australia by the middle of the century.

The reality is that the CBD, even with new office developments progressing, has limited expansion growth and remains expensive. In fact, Australia is estimated to require an additional 13 million square metres of office space by 2050 and that won’t be met from CBD office developments. Australia’s capital city office and commercial property markets simply have no choice but to look to suburban expansion

For many businesses it simply makes sense to seriously explore enterprise expansion in places where commercial property is affordable, there is a large, increasingly well trained population that is more than happy to seek employment opportunities with a reduced commute time and improved transport infrastructure means that moving people and goods is no longer the challenge it used to be.

Kalb brothers join forces as Just Commercial sets in for a new wave of business

Melbourne, 7th December 2018 – Property expert David Kalb has recently joined as partner, his brother Steven Kalb and James Taylor, both of whom were the founding partners of ‘Just Commercial’.

The company has in the last 6 months alone experienced a 15% increase in sales and leasing activity and with a new wave of business in the pipeline, is anticipating an even more profitable year ahead.

David has more than 15 years combined experience as Director and Manager in some of Melbourne’s biggest corporate real estate companies such as CBRE, Colliers International and Savills.

“In the last 6 months alone we have realised a 15% increase in sales & leasing activity” stated director Steven Kalb, “We are confident that David will contribute even further to this commercial success and form an integral part of Just Commercial’s next chapter.”

This move marks a new beginning for Just Commercial as David Kalb, although across all sectors of the commercial real estate market, will focus on implementing the company’s growth strategy, it’s property consultancy services and heading up a strong Industrial sales sector, an area that he has specialised in for most of his property career.

“David is superbly positioned to significantly add to our already strong presence in the south & south eastern commercial & industrial locations.” commented director James Taylor “His breadth of experience, knowledge and network of clients will offer yet another valuable dimension to the Just Commercial brand.”

Just Commercial was founded by Steven Kalb and James Taylor some 9 years ago. Steven was a founding partner in Dome Commercial from 1999 until 2010, when that company was divided; Steven was joined by James to form Just Commercial at a time when the commercial market was a little subdued. Over the years, Just Commercial has evolved into one of the most reputable, boutique commercial agencies in Melbourne’s south eastern suburbs with a loyal, astute client base, facilitating and managing high profile property.

“2019 is going to be a very exciting time for Just Commercial and I look forward to being part of it’s growing force.” commented David Kalb “I will continue to provide the same, exceptionally high level of personalised service I always have by continuing to nurture my existing, loyal clients as well as reaching out to new ones.”