VIC MARKET OVERVIEW
VICTORIA
VIC Market Overview with Paul Jones Reflecting on 2022, what were some of the prevailing trends that you noticed and how did they play out in the market?
likely to continue in 2023. This could lead to increased demand for logistics and warehouse space. 2. Recovery in the office sector: We believe the demand for office space will start to recover in 2023, as businesses begin to shift away from remote work. Challenges for the retail sector: The retail sector is expected to face ongoing challenges due to the continued growth of e-commerce and changes in consumer behaviour. However, with the anticipated return of roughly 50,000 international students to Australian shores, many of which will be returning to accommodation and education institutions in inner- Melbourne areas, this could drive a positive spike in CBD retail spending. Regarding increased lending costs, if interest rates rise, this could impact the various markets in the following ways: 1. Impact on demand: If borrowing costs increase, this could lead to reduced demand for commercial real estate, as investors may be less willing to take on debt to acquire properties. 2. Impact on prices: Higher borrowing costs could also impact prices, as investors may be less willing to pay top dollar for commercial properties if the cost of borrowing is higher. 3. Impact on yields: Rising interest rates could lead to higher yields on commercial real estate, as investors demand a higher return on their investment to compensate for higher borrowing costs. In summary, increased lending costs could have a significant impact on the Melbourne commercial real estate market, potentially leading to changes in demand, prices, and yields. However, the exact impact will depend on the magnitude and timing of any interest rate changes. What market sectors do you anticipate being most in demand over the next six months? Based on current market conditions and trends, the following market sectors are anticipated to be in demand in the Melbourne commercial real estate market over the next six months: 1. Industrial: The industrial sector is expected to remain in high demand, driven by the growth of ecommerce and logistics. This is likely to continue to drive demand for logistics and warehouse space, as well as for land suitable for development. 2. Healthcare: The healthcare sector has become increasingly important in recent years, and is expected to continue to be in demand. This is due to factors such as Australia’s ageing population, increasing healthcare spending, and a growing focus on preventative healthcare. As a result, healthcare-related properties such as medical centres, aged care facilities, and hospitals are likely to be in demand.
Looking back at 2022, there were several key trends that shaped the Melbourne commercial real estate market. Here are some of the most significant ones: 1. Demand for office space weakened: Due to the COVID-19 pandemic, many companies adopted remote work policies, leading to a reduced demand for office space. This trend was especially evident in the CBD, where vacancy rates increased. 2. Industrial property remained strong: Despite the pandemic, the industrial property sector continued to perform well, with strong demand for logistics and warehouse space. This was driven by increased e-commerce activity and the growth of the logistics sector. 3. Retail continued to evolve: The retail sector continued to experience changes in consumer behaviour, with a shift towards online shopping. However, the market also saw innovative new retail concepts, such as pop-up stores and experiential retail, that helped drive foot traffic and increase demand for physical retail space. 4. Heightened interest in sustainability: Sustainability became an increasingly important consideration for commercial property owners and occupiers, with a growing focus on energy efficiency, waste reduction, and sustainable design. 5. Increased social media marketing: Throughout last year we observed a strong up-tick in the amount of high- quality enquiries driven through targeted social media and digital communications to promote new listings. As the next economic order of investors and asset owners gains prevalence across the industry, we expect social media to play a greater supporting role tapping into different sales and leasing prospects that are more digitally savvy than ever before. Overall, these trends had a significant impact on the Melbourne commercial real estate market, with the industrial and retail sectors proving to be the most resilient, while the office sector faced some challenges. Itwill be interesting to see how these trends continue to play out in the coming years. Market-wise, what are you forecasting in the first half of 2023 and how will increased lending costs impact the various markets? Here are some potential forecasts for the Melbourne commercial real estate market in the first half of 2023: 1. Continued strength in the industrial sector: The industrial property market is expected to remain strong, driven by the growth of e-commerce and logistics, which is
PAUL JONES Managing Director, Jones Real Estate
52 –March / April 2023
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