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2022 Financial Year Commercial Property Update and Looking Ahead
As we leave the 2021-22 Financial Year behind, commercial property owners will be scrambling their documentation to lodge their tax return and begin planning the year ahead. It’s been a tough and uncertain year for many Perth businesses as we manoeuvred the pandemic following the border opening – but there is hope on the horizon.
In this article, we share a brief summary of the financial year we’ve left behind and explore the possible outlook for the year ahead.
Financial Year 2021-22 Overview
Now the Financial Year has ended, we look back at what was a strong year for commercial real estate, despite the fluctuating waves of COVID-19. Since the state border opening in early March this year, it seems most businesses have adapted their protocols to make working with or working around the pandemic, more effective. For many workplaces, this included adopting a more flexible work schedule and working from home.
Meanwhile, construction of new commercial and industrial assets in Perth has nosedived given the severe supply shortages and rising material costs. Construction of these buildings is one of the fastest declining industries in Australia according to IBISWorld. It’s not all bad news however, as investors are forced to acquire existing buildings, resulting in a very low commercial building vacancy rate.
Within the CBD, office vacancy rates have reached their lowest level in seven years, dipping to 15%, according to the Property Council of Australia. They also noted in their most recent report that sub-lease vacancy rates declined to a 10-year low of 0.9%, and office vacancy rates in West Perth reduced by 4.1% in the last year.
During the 2021-22 Financial Year, Perth commercial property investors were often fraught with uncertainty with rumours of rising interest rates, but interest rates still remain low overall. More notably, many investors would have experienced a positive cashflow with higher rental yields. The pandemic has helped identify which business models are more resilient and flexible, making it easier to find a long-term tenant who fits this criterion.
Outlook for 2022-23 Financial Year
Looking forward to the 2022-23 Financial Year, many of the trends noted in 2021-22 are likely to continue in one way or another. The most notable change may be the rising interest rates, which is likely to cause a faster rental growth figure. However, these interest rates are still substantially low compared to the last decade.
Unfortunately, building costs don’t appear to be recovering anytime soon, further enforcing a strong period of rental and capital growth.
Elsewhere, the industrial property sector remains the best positioned of the three main commercial sub-sections, with logistics and warehousing in high demand. Other essential services such as cold storage, online retail, and delivery services are going from strength to strength, promoting massive investor demand. In fact, Australia’s industrial property market is the ‘tightest in the world’ according to recent research from CBRE. Nationwide, industrial properties such as warehouses have a vacancy rate of just 0.8%, proving the huge demand for this market. This demand extends to B and C-Grade older industrial properties too, which are continuing to sell fast and for a premium.
On the other hand, the retail sector is experiencing an ongoing, slow recovery from the devastating effects of the pandemic. Hotel investment is following a similar route after falling behind in 2021.
Overall, the outlook for commercial real estate investments in the 2022-23 Financial Year and beyond is largely positive when compared to residential property investments. Some experts are predicting the strong industrial demand to continue for up to another 5 years. The federal budget adds fuel to these predictions with its pledge of $18 billion to go towards infrastructure nationwide.
For WA, we can hope that COVID-19 case numbers will fall, encouraging more businesses to come out of hibernation, further strengthening office vacancy and occupancy rates. The more activity we see, the more demand for well-positioned commercial property.
Looking to Buy, Sell, or Lease a Perth Commercial Property?
At Ross Scarfone Real Estate, we can assist you with all aspects of Perth commercial and industrial property sales, leasing, property management, and more. Our experience in the South-eastern Corridor of Perth is rivalled by few, meaning you receive the best service, no matter the ask.
Contact us today for sales enquiries, or for help managing your property in the new Financial Year.
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