Canberra’s commercial real estate market has experienced one of its quietest years on record, but activity is expected to ramp up heading into the new year.
Civium Property Group Director Sales Andrew Smith said a “market reset” could be expected as interest rates settled and buyer confidence improved.
“Since interest rates started rising 12 months ago, we’ve seen a significant drop in the sale volumes of commercial properties,” he said.
“Buyers couldn’t accurately assess the interest rate they should factor into building cash flows, which affected their ability to accurately assess property values. Bank lending criteria had also tightened up significantly over that time, reducing borrowing capacity for businesses.
“Now that rate rises have slowed, we’re seeing a lot more enquiries from buyers looking for commercial properties.”
Andrew said tighter lending conditions meant buyers were now more steadfast in what they were prepared to pay for property, and sellers were ready to adjust the prices to meet a more stable market.
“I think coming into 2024, we’ll see a market reset for commercial property,” he said.
“We’ll see more sellers entering the market and more transactions taking place. People are now making purchases based on today’s rates and looking for properties that will give them a stable yield with value add upside.”
After sitting on their hands for 12 months, Andrew said many buyers were interested in more affordable properties that offered value-adding opportunities.
“Investors are looking for commercial spaces that they can renovate, tweak or adjust rent on,” he said.
There’s high demand for commercial properties in the Canberra suburbs of Belconnen and Phillip, while Mitchell, Fyshwick and Hume remained the strongest industrial markets.
Andrew said with the onset of COVID, more businesses were looking for manufacturing, storage and distribution spaces around Canberra, which pushed demand and prices up for those industrial properties.
“There is a definite lack of supply in these markets with minimal land release on the horizon. Any residual stock has now been occupied, and there are supply and cost (land acquisition and construction) pressures pushing rents higher,” he added.
In contrast, the demand for hospitality space in the city has shifted from a day-time to a night-time focus as more people are working from home.
“In Braddon and the city, we’re finding Canberrans’ habits have changed. People are still working from home, so lunchtimes are slower; however, from 4 pm Fridays and over the weekend, hospitality businesses are trading more strongly,” Andrew said.
“People are coming out for the social side of life but are working from home more.”
New and high-end office spaces offer an excellent opportunity for occupiers, with many Canberra professional and medical businesses willing to pay higher rent in quality buildings that offer better amenities.
As the end of the year approaches and confidence returns, Andrew said commercial sales were already starting to pick up, with recent transactions setting a baseline for prices going forward.
“Now that demand is coming back to the market, and there is a more stable interest rate environment, we’ll see more buyers deciding to purchase,” he said.
“We’ll expect more commercial properties coming onto the market in the coming months, which will meet that reinvigorated demand.”