Source: MPA Mag —
While the current property market downturn is expected to start to level out late in 2023, the commercial property market has not been spared the effects of rising interest rates, the latest Herron Todd White data shows.
Releasing its Month In Review February 2023 report on Monday, the property valuation and advisory group captures the current sentiment within the commercial (industrial) sector, including the major markets and the movement in 2023, along with the residential and rural sectors.
Herron Todd White CEO Gary Brinkworth said interest rate rises were the primary reason for a softening in real estate prices over 2022, noting that as a rule of thumb, for each 50-basis point rise in the official cash rate, borrowing capacity drops by around 5%.
Commenting on the Month in Review report, Herron Todd White Brisbane commercial director David Walsh (pictured above) noted that yields had compressed by around 50 to 100 basis points in his service area, following the nine official cash rate movements.
Ahead of aggressive monetary policy tightening from the Reserve Bank of Australia, prime yields in the institutional space were sitting around 3.75% to 4.50%, and middle market yields were in the vicinity of 4.25% to 5.25%, he said.
Since interest rates began to rise, Walsh said that discussions with agents in the Brisbane industrial market revealed yields had compressed “circa 50 to 100 basis points across all markets”.
“Demand in the institutional space has also begun to deteriorate with industrial funds, REITs and property syndicates retreating somewhat due to the difficulty of cash flow forecasting and predicting accurate target returns for investors,” Walsh said.
Assets located within prime industrial locations have demonstrated strong leasing results and continue to be well-received by the market, he said.
Opportunities for industrial owner-occupiers
Overall, Walsh said demand for industrial assets was still strong, noting the owner-occupier market was an outstanding performer in the sub-$10million market.
“Now that industrial funds, REITs and property syndicates have retreated, opportunities for owner-occupiers have arisen to purchase either vacant assets or buildings with imminent lease expiries,” Walsh said.
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