Almost every area of commercial and residential property is set for some kind of change or even reversal in coming months new analysis has found, with several asset classes already on a completely different track to last year.
Weaker values and considerably strong rental growth are two of the biggest shifts to emerge so far according to CBRE’s annual Pacific Market Outlook report. This runs directly opposite to market trends of the past few years – a period when capital values rose consistently, and income growth hovered between low to modest levels. But the winds of change have been driven largely by a lack of new industrial commercial premises and residential properties coming on line, with supply of each asset class falling well short of consumer demand.
CBRE head of research Sameer Chopra said the dearth of new industrial and residential stock was so marked it would trigger a ‘rent-a-demic’ – a term to describe a situation where rents spike more sharply than before and then remain at elevated levels for longer.
“There is scope for apartment rents to grow by circa 30% over five years across the major capital city markets due to tight vacancy,” Mr Chopra said. “Eastern seaboard cities are tipped to experience rental growth of 4% to 6% per annum and on the west coast (Perth), 6%-7% per annum given the significant mismatch between demand and supply for inner-city.”
Better times for building
Another major reversal recorded in this year’s outlook was for construction costs to finally ease. Prices of raw materials from timber to spiked dramatically last year to send aerated blocks, plaster and roofing up 18%. Supply chain woes had a domino effect on the industry, building projects suffering and work often stopping for extended and costly periods. Construction sites to home renovations were impacted while numerous building firms including some of the country’s largest were sent to the wall.
The current outlook for the construction industry however was far more optimistic according to the CBRE report. Indicators such as the growing labour pool and a dip in raw material prices could pave the way for a drop in construction costs of between 10% to 15% in coming months. “This will help get development projects get off the ground in the industrial and residential sectors,” Mr Chopra said. Another positive sign for property markets were projections showing population growth over the next decade in Australia and New Zealand to be among the highest in the world, driving “significant demand” for real estate in the long term.
CBDs back in the good books
Other market trends that will gather pace in 2023 will be a resurgence of CBD markets and greater uptake by occupiers of ‘premium’ assets – premises either newly built or retro-fitted to offer highest current standards across every aspect of tenant experience from architecture and design to the latest technology, healthy state-of-the-art interiors, green credentials, end-of-trip facilities and more.
Mr Chopra said CBDs had been in a “reversal of sorts” since 2022 when - after two years of workers fleeing cities for more peaceful pastures across Australia’s regions – residents started returning and inner city vacancies suddenly fell by 1.8% as those in rural districts went back on the rise.
“The need to reflect lower commuting time will also be a major determinant of office location decisions,” Mr Chopra said. “As many respondents, particularly Gen Z and millennials, want to live in centralised areas, CBDs look set to once again be the most sought-after office locations.”
In the world of investing, opinions remained divided with over 50% of respondents expecting higher buyer activity this year while 38% predicted a fall. However the future looks brighter for the office market after a third of respondents said they would primarily target the asset class in 2023, a signal better times are ahead for the sector which suffered substantially from the upheavals of 2020/2021. And the prize for asset class with the biggest leap in popularity has gone to residential / build-to-rent – with 25% of respondents listing the sector as their top investment choice, up from 11% in 2020 and 18% in 2021.