After a tough period over 2022 and 2023, the commercial property market can look ahead to consolidation and the prospect of a recovery emerging in 2024, according to Knight Frank.
 
Knight Frank Chief Economist, Ben Burston, said the sustained pressure of higher rates has naturally put pressure on asset values and this is still playing out to varying degrees. “Part of the uncertainty has been a disconnect between formal valuation metrics and market sentiment,” Mr Burston said.
 
“However, with more deal evidence now coming through and formal valuations likely to be adjusted further in the December cycle, we expect the gap between sentiment and formal valuations to erode substantially over the next six months so that by mid-2024 the picture will be clearer for buyers and sellers alike, helping to restore confidence and liquidity.”
 
Mr Burston said that while reductions in asset value are never welcome, the flipside is the re-emergence of value looking forward. “Higher yields act to reset the market and provide a more attractive entry point for investors, generating the prospect of higher returns,” he said. “This is clearly illustrated when we assess historic market cycles and the performance achieved after pricing is reset in the aftermath of interest rate hiking cycles.”
 
He said the period immediately after the conclusion of previous rate hike cycles ending in 1994, 2000 and 2010, was in each case a very attractive time to buy, achieving above-average returns over the following five years.
 
“This is not to say that history will repeat, and investors cannot take for granted that interest rates will fall exactly as anticipated,” he said. “But careful asset selection will maximise the chances of strong performance whether it is achieved through income growth or boosted by a return to yield compression as interest rates revert in 2024-26.”

For businesses, the ability to access finance can make a huge difference to your success and ability to grow.
 
Regardless of the type of asset finance you’re looking for, your ability to repay debt will likely be examined by a lender. Lenders will assess your risk profile to determine things like your interest rate, so it’s important to understand how your business looks in the eyes of a lender.
 
Here are some factors that impact your risk profile:
 

• Length of ABN registration
• Your business’ performance
• GST registration
• Whether the loan is secured or unsecured
• Low doc vs. full income verification
• The asset
• Equity

Most businesses understand the importance of investing in equipment to move their business forward. As the saying goes, you need to spend money to make money. Here’s why it’s important.
 
EfficiencyOld equipment might get the job done, but is it going to be the most efficient way of doing things? With equipment financing, you can improve productivity, reduce project timelines, and increase the output of your business without needing additional resources.
 
Tax benefitsDepending on your individual circumstances, you could be eligible for write-offs and deductions that see you benefiting more from investing in new equipment than if you didn’t.
 
Workplace satisfactionWith new, state of the art equipment, your business becomes a place employees want to be, and customers want to visit. With better aesthetics and new technology, the increased capabilities make your business stronger and more desirable.

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Prime industrial rents surged by double digits in most capital city markets in 2021 as tenants were pushed to compete for the small amount of available space on the market.
 
According to JLL, the highest prime effective rental increases occurred in Perth (up 14.6 per cent), Melbourne (14 per cent) and Adelaide (13 per cent) over 2021.
 
In the secondary market, effective rents rose 16 per cent in Brisbane and Melbourne and 10 per cent in Sydney.
 
Around the country, a record 4.4 million square metres of warehouse space was taken up in 2021. This is a 52 per cent rise on the 2.9 million square metres taken up in 2020.
 
The data from JLL shows that prime industrial rents increased by more than 10 per cent in most capital city markets, fuelled by the acceleration of online retailing and supply chain disruptions.
 
JLL believe the completion of 1.3 million square metres of new logistics facilities in the next six months will ease pressure on companies needing warehouse space and create a more normalised rental market. Two-thirds of this new supply is already accounted for in leasing pre-commitments.
 
Fourth-quarter 2021 figures from JLL show 877,200 square metres of space was leased over the last three months of the year. The majority of this activity was in Melbourne (39 per cent) and Sydney (33 per cent).
 
Last year, JLL says 1.47 million square metres of new space was developed nationally, which was in line with the 10-year annual average. The full-year gross take-up total (4.4 million square metres) was 82 per cent higher than the long-term annual average.
 
JLL still expects above-average growth in the major markets in 2022 with many owner-occupiers requiring immediate access to more space.

A balloon payment is a one-off lump sum that you pay to the lender at the end of your car loan’s term. Balloon payments are more common with car loans for businesses and are a great way to help reduce your monthly repayments and free up cash. However, there are a number of advantages and disadvantages that you need to weigh up before deciding to go down the path of a loan product with a balloon payment.
 
Advantages 

Cash flow
The most obvious reason to make a balloon payment at the end of the loan term is so you can free up cash with lower payments over the life of the loan. For businesses, this can be important as the funds can be used in other areas to help you grow your business. If you’re able to save on the upfront costs and delay some of those costs, you could potentially be in a stronger financial position in the long run.
 
Keep the car new
One of the other key reasons you might consider this type of loan product is that it allows you to sell the vehicle at the end of the lease term to make the balloon payment. You’re then able to go and take out another loan to purchase a new car in the same fashion. The allows you to keep the car new which can reduce the cost of servicing and maintenance as the car is generally going to be under the manufacturer’s warranty. You’ll also be able to have a more technologically advanced vehicle.
 
Disadvantages 
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Higher overall cost
Generally speaking, if you’re using a loan product with a balloon payment, the overall cost of the loan in the long term is likely going to be higher. This might be OK if you’re putting the funds to better use in the short term, however if you’re not, this type of loan can become a hindrance.
 
Depreciation
It’s hard to predict what the value of the vehicle might be when the term of the loan ends. If a car has depreciated in value by more than expected, you might find yourself in a situation where you need to pay back more than the value of the car. This large payment could catch you unaware if you’re not prepared for it.
 
 
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Leading Australian valuer Knight Frank believes the sharp growth we’ve seen in industrial assets is set to continue in 2022.
 
Industrial assets have seen growth of around 15% over the course of 2021 and Knight Frank believes this is a trend that can continue for years to come.
 
Ben Burston, chief economist at Knight Frank Australia, forecasts capital growth at 6% in 2022, as well as a rent rise of 6% in Melbourne, 5% in Sydney, 4% in Brisbane and 3% in Adelaide.
 
Mr Burston suggests the recent growth we’ve seen in industrial assets has come about from investors being prepared to pay more for the same streams of income. He believes this is going to change with price growth likely to come from tighter supply and upward pressure on leases, with demand starting to drive up rents.
 
According to Mr Burston, leasing take-up volumes are 31% above their long-run average on the east coast, pre-leasing activity for new buildings grew by 11% in the year to October 2021 and demand from large users for industrial real estate is likely to exceed supply in 2022.
 
Knight Frank also notes, that there is likely to be an increasing shift towards local manufacturing on the back of the ongoing supply chain issues faced throughout the past 2 years.
 
Mr Burston also believes the office market is set for a turnaround in 2022 after a long period of high vacancy rates. He says that pent-up demand for office space will boost absorption rates and drive market recovery, with the flight to quality indicating that premium and upper A-grade space will be at the forefront of the resurgence in demand.
 
Many businesses that require office space have been waiting for conditions to improve and with the opening of international borders and lockdowns likely to have ended, there will be a push for companies to upgrade their space and return to their respective CBDs.
 
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Despite a tough year for many businesses, Australia recorded a record level of foreign investment in commercial property.
 
According to analysis from CBRE, 2021 saw $16.6 billion in office, retail, industrial and hotel assets changing hands, outstripping the previous record high level of $15.5 billion achieved in 2015.
 
CBRE notes that while many experts predicted closed international borders would hinder international investment in commercial property, the opposite turned out to be true. This is due to many international investors partnering with local fund managers to identify commercial property investment opportunities.
 
In terms of which countries are most actively investing in Australian commercial property assets, North America accounted for the highest share at 39% of all funds invested. North America has been the number one country looking to invest in Australian commercial real estate over the past five years. This year’s level of investment from North America was up sharply from pre-pandemic levels.
 
In second place was Singapore, which contributed 35% of this year's activity, also up on the pre-pandemic average.
 
According to CBRE, some of the major transactions this year involving foreign investors include the $925 million sale of a 50% stake in Grosvenor Place to Blackstone, the $3.8 billion sale of the Milestone industrial portfolio to a partnership between GIC and ESR Australia, the $538.2 million sale of a half stake in Sydney's Queen Victoria Building, The Strand Arcade and The Galeries to a Link REIT/EG Funds partnership and the $315 million of the Sofitel Wentworth Sydney hotel to KKR, Futuro Capital and Marprop.
 
Looking at the different sectors and it has once again been Industrial & Logistics that were the most invested asset class with 44% of total sales. The office sector was closely followed in second place with 43% of total sales.
 
Despite having a tough two years, the retail sector is expected to see renewed interest in 2022 with the reopening of international and state borders and the end of many other restrictions.
 
CBRE expects Australia to continue to see strong international capital inflows into commercial property market next year, with the market being viewed as an attractive proposition given the available returns and the relative strength of the economy compared to parts of Asia, North America, and Europe.
 
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​As we know, all borrowers have different circumstances and that’s why there is never a one size fits all approach when it comes to lending.
 
For the majority of full-time employees with a good credit history, you will likely have a range of options and be able to look at a regular home loan.
 
To access a regular home loan, you might only need three months of payslips or two years of tax returns. Generally speaking, regular home loans are a lot more stringent and that’s why we see some regular home loans with very low interest rates.
 
Unfortunately, for the self-employed and business owners, it’s not always possible to present two years of tax returns or payslips. For these types of borrowers, there are other avenues to getting finance for a home, one of which is by providing alternative documents (alt-docs).
 
Lenders that offer alt-doc loans will normally require three months’ worth of personal bank statements and six months’ worth of business activity and business bank statements, or potentially even an accountant’s declaration.
 
Given the borrowers’ income is not as black and white as a PAYG employee, interest rates will normally be higher, while there might also be higher loan application fees and setup costs.
 
It is important to note that just because you might be self-employed or a business owner, you don’t automatically need to go for an alt-doc loan. If you’re able to produce two years of tax returns and have a good credit history, then you should be able to qualify for a regular home loan at lower interest rates.
 
However, if your business has recently seen a large increase in revenue and you want to access a larger loan, then it might be worth looking at an alt-doc loan. Similarly, if you’ve had credit issues in the past that you’ve been able to turn around, then an alt-doc loan might work for you.
 
There are also a few myths out there, surrounding alt-doc loans. The main one is that you can get a loan with no documentation at all. Those days are long gone and you will need to be able to prove that you have the means to service the repayments. The second myth is that the big banks don’t take on these types of loans. In many instances, the major banks are able to look at lending to people without the full documentation, given they have the size and diversity to handle different amounts of risk.
 
Once again, the key is to talk to a mortgage broker who can quickly understand your personal circumstances and match you with the right solution for your needs.
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​A commercial property is simply a premises in which business takes place. Many investors may have never considered investing in commercial property, purely because they may not fully understand it.
 
Most people would set foot in a commercial property almost every single day of their life. From their office building to the local supermarket, service station and even day care centre. Generally, commercial properties fall into specific categories, based on what they are used for.
 
Retail
Whenever you go to a restaurant, café, or go shopping at a boutique or shopping centre – you’re stepping into a retail property. Retail is normally located in popular areas where there is plenty of foot traffic, as the types of businesses that own and lease these locations need direct access to customers.
 
Generally speaking, retail properties are more expensive and have lower yields than other types of commercial properties. That’s often due to the nature of the locations they are in. These are already popular areas with great amenities, and the land value is high for both residential and commercial properties. These properties can be quick to lease out. However, there are some risks as businesses such as restaurants can turnover regularly.
 
The great thing about retail businesses like restaurants and cafés is that they are often synonymous with a certain location. That means that if a business is successful, they will potentially stay there for a very long time.
 
Office
If you go to work in an office, then the odds are that your business leases that building. However, in some circumstances they might own it.
 
Offices can vary greatly from the premium high-rise locations that you might see in a CBD, all the way out to small office blocks in the outer suburbs that might be used by a small accounting firm or lawyer.
 
Offices can therefore be priced very differently depending on where they are located. One consideration with office space is that businesses might leave if they outgrow the space, as the types of businesses that lease offices don’t always rely on a location.
 
Industrial
Industrial property encompasses different types of spaces such as warehouses or manufacturing factories. Typically, industrial properties are not in premium locations and are therefore priced a little lower than other types of commercial properties. This also means yields can be higher at times.
 
Some industrial properties can be very appealing as tenants stay for long periods of time. Conversely, properties like warehouses are simply renting out floor space and not generally fixed in that location. In recent years, warehouses have been in high demand as many businesses move online and need additional space for storage.
 
Specialist Properties
Some commercial properties are considered more specialised and don’t fit into one of the above categories. The most common specialised properties are places like services stations and childcare centres.
 
While these types of properties can be attractive, they also come with some risk. Specialist properties typically only attract a single type of tenant – one who operates those types of business – whereas other properties such as office, retail and industrial can be used for a wide range of purposes across different businesses.

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