2022 Office Outlook
By John Marasco, Managing Director of Capital Markets & Investment Services, Colliers (0412 211 033)
Office investment has rebounded strongly in 2021 and is expected to gain further momentum as we head into 2022, particularly with the reopening of international borders removing barriers for international capital waiting to be placed in the Australian office sector. Border closures have not dampened demand – investors had already decided to place capital in Australia and the local property industry was quick to adapt to allow this investment to continue.
We expect transaction volumes to significantly exceed those recorded over the last two years, as we expect more assets to come to market as opportunistic vendors look to sell and capitlise on the weight of capital looking for a home across the office asset class.
Office remains a core focus for investors, and we expect capital to continue to chase core prime product and a long-WALE assets which is expected to support more significant increases to values and continued downward pressure on yields.
Trends to watch
ESG factors such as energy efficiency will be of more importance and may be the deciding factor when choosing between assets for investment.
There is more opportunity to be unlocked as borders re-open and offshore buyers return, adding increased competition to the domestic market. With pent-up demand from foreign investors who have not been able to physically inspect property in Australia in the last 20 months, the reopening of borders will deliver a higher volume of buyers and result in more transactions across the country.
Domestic investment will also remain strong, with major institutions and superannuation funds looking to increase their property portfolios in the coming years. Australian Superannuation Funds in particular will continue to invest across most asset classes including office and alternatives. This is further evidence that Australia, its property market and its major property players are well positioned for growth as we approach the end of 2021 and look ahead to 2022 and beyond.
By Simon Hunt, Managing Director of Office Leasing, Colliers (0411 156 686)
Colliers’ Office Leasing team nationally ended 2021 with positive signs for a strong start in 2022. A total of 3,576 enquiries for 2,926,966sqm of office space were recorded for November YTD 2021. This was a 17% increase on the number of enquiries recorded compared to November YTD 2020 and a 12% increase on the area enquired for compared to November YTD 2020.
Deal activity in 2022 will continue to see a return of transactions above 3,000sqm. Large occupier deals will return as tenants above 3,000sqm finalise their space requirements and look to solidify their workplace strategies. In the final quarter of 2021 we saw a significant increase in deals over 3,000sqm transacted by the Colliers Office Leasing team.
In 2022, we expect to see an increase in pre-commitment activity driven by a continued “flight to experience” and “flight to quality” as large corporates look to new developments to fulfil their needs for a next generation, high quality of space for returning to staff to the office. We have all begun to think differently about the spaces and places we work in, increasing the focus on experience and creating best-in-class physical spaces. The demand for space hasn’t changed, but the way we use it certainly has. The pandemic environment has seen the evolution of a hybrid workforce and this has driven occupiers to reassess what they want and need from their office space. This includes an increased focus on quality amenity, flexible space, health and wellbeing, and cutting-edge technology.
ESG factors such as energy efficiency will be of more importance and may be the deciding factor when choosing between assets to occupy.
Flexibility will continue to be king – occupiers will look to potential flex-space options with the buildings and a flexibility of terms.
Face rental growth will be more solid as incentives start to reach the limits of where owners will go to and some owners portfolios start to see vacancy decrease.
2022 Industrial Outlook
By Gavin Bishop, Head of Industrial Capital Markets, Colliers (0401 146 051)
Favourable outlook as institutions continue to re-weight and increase their exposure to the sector.
There remains a significant amount of unsatisfied capital. There is approximately $40-$50billion in capital looking to enter the sector, which significantly outweighs the availability of assets for sale.
Private investors and selected institutions looking to recycle capital are expected to take advantage of this in 2022, and large portfolios will continue to be brought to the market. Some groups may believe we are at the peak and they will want to take advantage of favourable market conditions.
Yields have further to run. We forecast yields to stabilise in mid-2022 at which point average midpoint yields in Sydney and Melbourne will be at 3.50% or lower – broadly in line with other major global logistics hubs.
Investment in transport infrastructure and e-commerce will continue to provide positive tailwinds to the sector in 2022.
While yields are expected to fall further over the next 6-9 months, asset performance is forecast to be supported by an acceleration of rents in selected markets.
Trends to watch
By Gavin Bishop, Head of Industrial Capital Markets, Colliers (0401 146 051)
Infill locations across all capital cities to perform well in 2022. Occupiers are actively seeking warehouse space in these locations to fulfil their last-mile logistics functions. Investors will pay a premium given the high underlying land value.
East Coast to benefit from the significant investment in transport infrastructure. There is $110billion in committed or underway projects across the three States, representing 83% of the national pipeline.
Brisbane to benefit from superior population growth compared to the southern capital cities – net interstate migration into Queensland is currently at its highest level since early 2005.
Vacancy rates will remain tight in Sydney and Melbourne given the underlying levels of occupier demand. There is the potential for vacancy rates to rise in Brisbane given the large volume of speculative supply in the pipeline.
2022 Retail Outlook
By Lachlan MacGillivray, Head of Retail Investment Services, Colliers (0413 053 919)
Favourable outlook as the spread between yields and the bond rate is at an all time high.
Retail yields started to sharpen and will likely continue to do so, particularly neighbourhood and sub-regional centres, with pricing becoming more competitive. This is due to increased appetite, and investors eager to go up the sub-sector curve in order to acquire a secure asset.
Over 2021, we saw increased liquidity for assets located in regional areas, likely to continue dependant on available stock.
Neighbourhood and sub-regional assets to experience further yield tightening, driven by investor demand and the security experienced over the last two year. Yields for other retail assets are expected to hold relatively steady on average.
Regional/super regional pricing will remain strong with limited availability expected.
Trends to watch
By Michael Bate, Head of Retail Agency, Colliers (0411 043 268)
High end retailers to make an appearance in the CBDs, encouraged by strong luxury sales during Covid-19 and more high end brands wanting to enter the Australian market.
Dining and beverage precincts to increase and improve to support consumer demand – especially driven by consumers eager to go out since lockdowns have been lifted and State Government voucher incentives.
Continued integration of various sectors (such as residential and office) within retail centres in an attempt to diversify and improve local catchments. Build-to-rent and mixed-use will continue to perform strongly, particurly in transport corridors.
Improved technological capabilities in retail stores including grocery stores, that support an increase in online shopping (dark stores). Neighborhood centres will begin to look to remixing to accommodate pick-up zones.
CBD assets that are reliant on tourism and increased foot traffic will continue to feel impacts of closed CBD offices, domestic and international borders together with back-to-office campaigns.
2022 Agribusiness Outlook
By Rawdon Briggs, Head of Agribusiness, Colliers (0428 651 144)
Economic outlook is looking the strongest we have seen in multiple generations for most sectors of Agriculture that are not over-exposed to Chinese trade term changes.
Agribusiness will see an increase in supply of property on the market after the largest winter crop in history ensures a number of families or corporate clients see this as an exceptional exit opportunity.
The spectacular 2021 rise in Agribusiness property values nationally and structured exits achieved this year has confirmed that Agribusinesses properties are a true stand-alone assets class.
In 2022, we predict that the scene is set for increased sale prices and property volumes, especially given the strong seasonal conditions in eastern Australia combined with favourable fixed interest rate in debt markets.
We are expecting, however, an uncertain 2022 for Australia’s wine industry. The impacts of China’s tough tariff on Australian wines are likely to be felt following vintage. We may see an increase of assets on the market, particularly those most exposed to the Chinese market.
There will be continued demand from domestic and overseas agri funds for large-scale agribusinesses. It will be a highly competitive market place for suitable assets.
Border restrictions, labour supply challenges and transport logistics continue to hamper the horticultural sector and potentially limit expansion, driving research and development into mechanisation and robotics.
We expect an increasing focus from agribusiness investors on Environmetal, Social and Corporate Governance (ESG) Assets demonstrating that strong ethical factors are in demand.
Low labour high output livestock Agribusiness assets will continue to reach record numbers until debt providers reduce supply or increase markets.
Agribusiness & Forestry assets are one of the few asset classes that can provide a full and final mitigation of Scope 3 carbon emissions to the wider global business community.
2022 Residential Outlook
By Peter Chittenden, Managing Director of Residential, Colliers (0418 829 529)
You don’t need to look far to see interest rates being targeted as the main driver of higher house prices and demand. Home equity also increases as interest rates fall, and recently as home equity climbed many vendors looked keen to sell-up and move on and so prices increased, and the pandemic pushed demand. An improving economy and rising inflation had already forced a changed forecast in last month's RBA policy meeting, noting that interest rates could now begin rising as early as 2023. Whoever is right, there’s a lot of effort being made to make homebuyers very much aware that rates are destined to go up. There is a clear ‘warning’ for borrowers in all of this, to be aware, and that’s bound to create caution among buyers in particular first-time buyers. The market – and that includes buyers, sellers and the wider development industry – has been openly ‘warned’ that rates may go up sooner than expected.
Location has always been one of the biggest factors influencing homebuyers. Looking towards 2022, we expect all of the aspects that combine to define a desirable location will come into sharper focus. Key reasons are that the pandemic, along with shifting demographics and working/learning from home have combined to redefine the merits of location. The desire for more space and a lifestyle shift during the pandemic rearranged many lives; we’re looking for bigger homes, more flexible homes and for some, a second home. The now well-publicised popularity of many coastal and regional locations has shifted demand for a greater variety of suburban locations and a huge appetite for prestige locations, both homes and apartments.
However, as we continue to adjust to living with covid, the merits of a good location will change. The covid-induced trends may slow or even reverse; however, the influences are complex. One notable impact that we expect will reverse is the movement away from CBD areas. Over the last 6-months, we’ve noted strong demand for larger quality apartments with sales above $10 million, at their highest level ever. While open borders will further boost CBD demand, we expect this level of high-end demand marks a new and timely level of sophistication.
2022 Hotels Outlook
By Karen Wales, National Director of Hotels, Colliers (0405 227 152)
The Australian hotel investment sector recorded its second most active year on record in 2021 with volumes boosted by eight large transactions ($100 million plus & $1.7 billion in total) and with a depth of smaller trades. Regional Australia and hotel conversion projects both featured strongly in 2021.
We expect to see further momentum as we head into 2022. The rapid rollout of the vaccine is almost complete, there is adequate supply of booster shots, restrictions are being relaxed and borders are reopening. This should result in increased tourism activity across the country and provide greater access to international capital which is targeting Australian hotels to take advantage of the expected trading upswing.
Transaction volumes are expected to increase through 2022 as more private owners look to exit, older CBD and city fringe hotels are sold for conversion to an alternate use and with the further rebalancing of global and national hotel portfolios. The availability of new CBD hotel room stock past a development phase is also expected to result in more buying opportunities in tightly held markets.
The major leisure markets, two-hour drive market and regional luxury boutique/wellness sectors will also remain key targets for investors.
The domestic leisure segment will lead the recovery with high occupancies and room rates being reported in some markets at the weekends and during peak trading periods.
National forward bookings are not as strong as in December 2020 however, as consumers remain wary after two years of interrupted travel.
The corporate and MICE segments will gain momentum through 2022 with a degree of pent up demand.
International tourism will slowly build as travel bubbles are established and with the return of international students and working holiday makers. A more insular China also remains a concern for the sector.
City hotel markets will trade at lower annual occupancy levels through 2022 with reduced demand particularly during shoulder periods.
The national hotel development pipeline is expected to peak in 2022. Melbourne, Adelaide, Gold Coast and to a lesser extent Sydney and Brisbane will all experience an element of downward pressure from new supply. Looking ahead, supply levels will moderate with few new projects progressing to construction as construction costs have increased and feasibiliites have become challenged. This will allow demand to catch up with supply.
Labour shortages will continue to weigh heavily on the sector in the short term.
The importance of sustainability factors such as energy efficiency are expect to grow in importance and will ESG will increasingly factor in hotel investment decisions.
2022 Economic Outlook
What will be the challenges overall?
By Joanne Henderson, National Director, Research, Colliers (0410 391 093)
Economic outlook – while the economy has rebounded sharply in late 2020 and post Q3-21 lockdowns in Sydney and Melbourne, both consumer and business sentiment could be choppy as we learn to live and work with COVID-19 in the commnity.
The recovery in late 2021 and into 2022 will be dependent on consumer confidence and willing to spend within the Australian economy as stimulus measures have heavily fuelled the retail trade rebound. However, the recovery was ahead of expectations even after the stimulus measures rolled off in March 2021.
Lower levels of population growth will remain a drag on overall levels of consumption and place pressure on labour markets and therefore fuel inflationary pressure.
Sticky inflation could cause the RBA to increase rates earlier than previously expected.
Industrial increase in supply – except Melbourne, supply levels in the other capital cities have been broadly in line with their 10-year average in recent years. Looking ahead, supply levels will increase substantially, particularly along the East Coast, and a large share of this is speculative supply. If demand levels were to weaken, there is the potential for a blow out in vacancy rates and hence downward pressure on rents. This scenario is not expected in Sydney and Melbourne.