VIC MARKET OVERVIEW
VICTORIA
Nathan Mufale, David Minty, JJ Heng - CBRE
Looking ahead to 2024, what’s your outlook for the commercial property sector. Stability, optimism & growth are the words which align with the current market sentiment heading into 2024. With inflation falling to 4.1% in December and expectations that this trend will continue, combined with the Reserve Bank at their first board meeting opting to reign in monetary policy, this has created a sense of stabilisation. Signs of optimism in the market are already evident with people feeling more at ease with making commercial property decisions whether this be to buy or sell. Notwithstanding there is a notable preference towards particular asset classes such as residential, retail, health & medical, childcare with secure tenant profiles or alternatively with large underlying land suited to a future higher order land use and development. Buyers are taking long term positions on the office sector with a view that vacancy rates will start to tighten due to a forecasted reduction in new supply over the next 3 years. The final sentiment is growth which is projected pending the RBA’s determining of cutting interest rates. Reflecting on conversations with buy-side clients, what’s their sentiment & what’s the profile of buyers you’re expecting to be most active this year. For residential, there is a common appetite from developers towards 80-150 apartment project sites in Melbourne CBD fringe locations where apartment pre-sales are more attainable over suburban locations. In addition, end sales rates are typically above $11,000sqm in CBD fringe locations which can off-set recent construction cost escalation. At the Build To Rent level, 200+ apartment project mandates within 10km* of the CBD and walking distance to a train station are a common mandate in this sector. There is a preference toward permit approved sites as a means of de-risking planning
and notably time frames in securing a planning permit which have extended out to 18 months to in some cases 2 years. This has stalled a number of current projects from being delivered. The requirement for permit approved projects is being driven by offshore funders who are taking a more cautious approach albeit very committed to further expansion within Victoria in lieu of strong market fundamentals. On the boutique project side, 30-50 apartments projects in the City of Boroondara, City of Stonnington & City of Port Philip are preferred largely driven by end sales rates achieving above $14,000sqm* and apartment pre-sales are being tailored towards the downsizer market. For growth areas, PSP approved locations which are serviced are a clear standout given the more immediate development opportunities and to off-set increasing servicing and delivery costs which have seen a recent recalibration in land rates in those areas of absence. Whilst retail sales of house and land have been slower over the course of 2023, strong population growth with increased migration estimates which make up a substantial proportion of consumers are driving a confident outlook in this market. For retail, there is strong demand for fast food & retail convenience assets given the strong underlying fundamentals of business performance which was clearly evidence during COVID. For larger retail assets, we saw a softening in yields as institutional groups ‘off-loaded’ assets to meet investor redemptions in lieu of subdued fund performance. This has brought opportunity for private high net worth investors to enter the market to purchase with greater value than recent times. For 2024, we anticipate foreign capital to lead the way for Australian retail assets who largely sat on the sidelines for the majority of 2023 with the exception of PAG (Midland Gate SC) and JY Group (Forest Hill Chase), driven by greater political & economic stability and favourable asset repricing. Notably, 8 out of our teams last 10 transactions in December were to Asian buyers sourced via CBRE’s Asian Services Division and our International Offices.
NATHAN MUFALE
DAVID MINTY
JJ HENG
48 – February /March 2024
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