CONSIDER THE COMMERCIAL SECTOR

At the end of 2022, Australia’s commercial real estate sector was a 1.1 trillion-dollar beast. The Real Estate Institute of Australia (REIA) released its inaugural State of the Industry Report: Australian Commercial Real Estate in December last year.

The report suggested that Australia’s regional areas were primed for growth in commercial property demand after years of investors focusing on capital cities, citing changing population trends and small business activity in regional areas underpinning the level of demand.

REIA President, Mr Hayden Groves, said at the time that the Organisation for Economic Co-operation and Development (OECD) was forecasting Australia would outperform many other advanced economies, with its GDP growing around 2.5 per cent.

Expanding migration and an economy performing well, plus other factors, offered commercial real estate investors a unique set of opportunities and challenges in 2023.

The report listed key opportunities in ten areas: regional commercial investment; industrial property offered with full automation and logistics solutions; energy efficiency innovations; future proofed buildings; energy efficient ‘green’ buildings; revived office opportunities; undersupply to drive industrial rental growth; future development sites; in-house automation solutions for occupiers; and in-house automation solutions providing new value points for investors.

The definition of commercial is diverse and can include anything from retail shops, restaurants, offices, professional suites and industrial property to student accommodation, childcare centres, service stations and car yards. It is a varied market.

Changing economic dynamics have not affected it in the same way as the residential scene as it behaves quite differently.

Demand for industrial property, at the start of 2023, continued to outstrip supply in almost all places across the country. This meant prices for commercial land and buildings overall were holding solid. Healthcare continued to prove a resilient performer. While CBD retail property suffered in the rise of flexible working practices, some retail property types benefited. Childcarerelated properties have remained in strong demand, similarly professional suites and suburban strata offices.

The Retiring Investor

As comfortable as most Australians are with investing in residential, the reality is that it may not produce enough income to retire on, if that is the goal. Commercial property within a portfolio may be the solution to generating a workable passive income for an early retirement because the commercial property investment potentially has lower outgoings and often higher rental yields. One of the reasons for an increased yield is that commercial tenants pay the outgoings, such as council rates and maintenance, land tax and insurance after costs.