Election result boosts commercial property in Melbourne

Election result boosts commercial property in Melbourne

24 May 2019

Melbourne’s commercial property market is set to regain momentum in the second half of 2019, despite negative noise surrounding the dwindling number of transactions, predicts Savills Australia.

The leading commercial property agency has predicted a stabilisation of market conditions in the next six months, with Savills Melbourne director, Nick Peden, saying consumer confidence was expected to “build enormously” following Saturday’s federal election result.

“With the share market at 12-year highs on the first day after the Coalition’s election victory, the threat of a cap on premium increases as promised by Labor was removed,” he said.

“There is no doubt that the Melbourne property market has softened since mid-2018, predominantly due to the tightening of bank lending, easing consumer confidence levels, and the softening of the housing market.

“But with strong fundamentals underpinning the market, we can expect a stabilisation of prices in the short term, and with greater confidence, improvement will soon follow.”

Mr Peden said Victoria’s nation-leading population growth, strong employment conditions, and “more than likely” future interest-rate cuts would all contribute to the comeback.

“We anticipate that as 2019 progresses, consumer confidence will build and, coupled with a relaxation of lending criteria from banks, we will see housing prices rebound, which will in turn positively impact the commercial market,” he said.

Melbourne’s office market was the “star performer”, Mr Peden said, leading the nation with the lowest vacancy rates nationally, and most vacancy rates at 10-year lows.

Savills global Impacts report, released earlier this month, revealed that the Melbourne CBD office market is leading the charge in yield compression worldwide.

Meanwhile, a wave of speculative development in Melbourne has lifted the industrial property vacancy rate by 8 per cent to almost 700,000 square metres of empty warehouses, the AFR reports.

Knight Frank head of industrial, Gab Pascuzzi said that prior to this quarter the Melbourne vacancy rate had been declining over the past year.

“Low vacancy and rising rents have created this appetite for speculative developments,” Mr Pascuzzi said.

Some market observers argue Melbourne rents will need to rise steeply to make future developments stack up on a return basis.

Nevertheless, a higher vacancy rate could take the pressure off future rent increases.

Among the recent land deals, funds management giant ISPT paid $60 million in February for a large site in Melbourne’s south west.

Industry insiders said the deal for the 30-hectare site on Horsburgh Drive in Altona North represented about a 100 per cent increase on what the property would have sold for 18 months ago.

Mr Pascuzzi though was bullish on the outlook for the Melbourne industrial market, where rents are still significantly cheaper than Sydney at an average of $87 per square metre versus $118 north of the border.