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Commercial Property Set to Boom (if you still own it)
Real estate research firm CB Richard Ellis has released an upbeat assessment of Australian Commerical Office property assets. They have said that these markets are now stabilising after having fallen as much as 20% in the September quarter last year. This is demonstrated by the fact the average rental income per square metre has risen from $6,688 to $6,744 in the March quarter.
Kevin Stanley from CBRE has said that rental growth as well as a reversal of the blowout on capitalisation rates (where investors demand a greater income yield on assets) will see an increase in the value of these properties. The cities that are expected to have the best growth in rental income are the main centres of Sydney and Melbourne. CBRE's rental growth in these cities is forecast to be 7.5% and 6% per annum until 2013.
BIS Shrapnel recently said that the commercial property investment community overreacted to the financial crisis which will result in solid gains in rent and values as they play catch up. This fact along with the underlying fundamentals of demand and supply, they believe vacancy rate in Sydney will fall to 5%, will also be supportive of rents and capital values. They are extremely bullish on rents saying that they expect rent to increase between 85%-100% between now and 2017. They go on to say that the past and current caution of the banks and investors is going to lay the foundation for supply shortage over the next few years providing great opportunities for patient investors.
Given all of this why are the Australian banks putting so much pressure on the unlisted property sector to continue to sell assets at this point of the cycle? Surely, it would be both the banks interest and the investors in these assets to sit tight and wait for the cycle to improve. Banks have behaved disgracefully during the global financial crisis in regards to these borrowers who even though they are still collecting rent and paying their bills have seen the interest they pay increased dramatically. This increase has not been as a result of the general level of interest rates going up rather the banks have increased the margin which they charge the borrower on top of what the funds cost them. Given the lack of competition in Australia as a result of the GFC these investors who are mainly mum and dad investors will see a tremendous amount of their wealth passed onto the banks at best and destroyed at worst due to rash asset sales. An organisation called the Light of Day has been attempting to lobby the Australian Government on behalf of retirees and other investors in these investments at this point with no success.
Kevin Stanley from CBRE has said that rental growth as well as a reversal of the blowout on capitalisation rates (where investors demand a greater income yield on assets) will see an increase in the value of these properties. The cities that are expected to have the best growth in rental income are the main centres of Sydney and Melbourne. CBRE's rental growth in these cities is forecast to be 7.5% and 6% per annum until 2013.
BIS Shrapnel recently said that the commercial property investment community overreacted to the financial crisis which will result in solid gains in rent and values as they play catch up. This fact along with the underlying fundamentals of demand and supply, they believe vacancy rate in Sydney will fall to 5%, will also be supportive of rents and capital values. They are extremely bullish on rents saying that they expect rent to increase between 85%-100% between now and 2017. They go on to say that the past and current caution of the banks and investors is going to lay the foundation for supply shortage over the next few years providing great opportunities for patient investors.
Given all of this why are the Australian banks putting so much pressure on the unlisted property sector to continue to sell assets at this point of the cycle? Surely, it would be both the banks interest and the investors in these assets to sit tight and wait for the cycle to improve. Banks have behaved disgracefully during the global financial crisis in regards to these borrowers who even though they are still collecting rent and paying their bills have seen the interest they pay increased dramatically. This increase has not been as a result of the general level of interest rates going up rather the banks have increased the margin which they charge the borrower on top of what the funds cost them. Given the lack of competition in Australia as a result of the GFC these investors who are mainly mum and dad investors will see a tremendous amount of their wealth passed onto the banks at best and destroyed at worst due to rash asset sales. An organisation called the Light of Day has been attempting to lobby the Australian Government on behalf of retirees and other investors in these investments at this point with no success.
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