Jeff Moxham: Commercial Property Thoughts For 2022

2021, What a bumper year for commercial property. Both the residential and commercial markets were seriously strong. Feels like 2022 will be also strong, perhaps not as white hot as 2021. Let’s get into the sectors and see where they’re headed this year.

Major Sectors:

Industrial real estate had an incredible year last year with their lowest ever vacancy rates and yield surpassing the office sector. The boom in eCommerce is to thank for this success as more and more businesses need increased space for stock. With increases in online purchases and decreases in consumer patience, businesses look to stock and distribute products to the utmost efficiency. I am seeing many businesses looking to prepare for a continued pandemic.

As we buy more, they sell out of stock and need larger spaces to hold more products. In 2022, I believe the industrial sector will just continue to go from strength to strength as businesses look for stock space security.

Retail real estate saw a split in 2021 as it was divided between essential and non-essential? shopping. Everyday businesses such as supermarkets, liquor stores and chemists were very strong whereas specialty shops with large shopping malls became less popular with the public seeing these as higher risk and non-essential. As a result, neighbourhood shop strips are flourishing, consumers also looking to support small local businesses. The yields for retail investment in 2021 became sharper and shaper with significant yield compression. Hard to say if we will continue to see greater yield compression in 2022 however it is tipped to remain strong. In my view, the divide between essential and non-essential retail will continue to be reflected in the yields of these assets.

Office leasing in the major centres had limited success in 2021 with such significant WFH restrictions leaving many offices vacant or mostly empty. I have strong confidence in the eventual return to the office and office leasing space. In my opinion, smaller companies can afford WFH without significantly impacting productivity and culture, although this is far more challenging for big businesses with hundreds of employees. This year I believe we will start to see more larger companies heading back into the office which will in turn support the office leasing space. The international and local capital markets certainly seem to have faith in the future value of office buildings as an investment vehicle with some very large deals transacted late last year at strong yields.

Residential development had a very strong 2021 and was a great area of success for my team. I feel that 2022 will be another bumper year in this sector. This should particularly be the case in the apartment space as more and more purchasers are priced out of the land and housing market. High end areas of the residential development market will in my view continue to be particularly hot.

Another exciting aspect of the year to come is the hopeful return of international migrant workers and students who support thousands of Australian jobs. This return will significantly benefit the economy and support the huge student accommodation market and associated industries.??

Private debt markets have had a massive last few years and will only continue to thrive while the major banks remain firm on their approach to lending. Whilst traditionally more expensive than the big banks, private debt markets are becoming more and more competitive with huge amounts of private debt still flowing into Australia looking for a home. Their flexible methods of doing business is certainly a major driver for their growing client base here.?

Specialist Sectors:

Childcare has had a great 2021 and will continue in strength over 2022. With the Australian Government introducing grants to support childcare businesses was a real shot in the arm? for this sector. As childcare is essential, if children aren’t staying at home, I think we will see strength in the coming year.

Data centres are an emerging specialist sector that is one to watch this year. Look out for my podcast episode on this next month.?

Generally across the board, specialist areas of the markets will be keenly sought after as traditional returns continue to be sharp.??

To note, these are not predictions rather just my thoughts and not to be taken as advice.

Overall, I believe we are in for a strong year in the commercial property market, but as we know so well after the last two years, we should be ready to expect the unexpected!

Best of luck to the new year for all. Feel free to reach out if you have any questions.?