The current business and consumer confidence will continue to have a positive effect on Australian property into 2016, according to “Property Outlook”, the 2016 forecast report by Colliers International.
“We have experienced a sustained increase in business confidence over the past twleve months,” said John Kenny, CEO Australia and New Zealand at Colliers International. “This confidence is having a positive impact across the property sector, and this optimism is starting to flow through to several of our occupier markets, as businesses become more confident in leasing office space.”
The Sydney CBD office market has experienced improving conditions since early 2015, with a significant decline in vacancy over the year. This run is expected to continue to spread to other markets with Melbourne CBD office, Sydney industrial and national neighbourhood and large format centres likely to experience particularly strong demand conditions in the year ahead.
Despite this return of occupiers across the country, there will still be pockets where this does not lead to rental growth. In some markets, elevated levels of supply are offsetting the strong growth in tenant demand. Similarly, those locations impacted by parts of the economy experiencing a slowdown, such as those markets dependent on the mining sector, will be the under performers in 2016.
Consumer confidence levels, which have remained elevated for some time, are another contributing factor in the overall strong performance of the property sector.
“The strong residential housing market, increasing consumer confidence and the lower Australian dollar are all factors that have contributed to the current state of our economy,” said National Director of Research at Colliers International, Nerida Conisbee. “Right now, Australian interest rates remain stable at their historic low of 2%. Nevertheless, the Reserve Bank continues to suggest that it is not averse to cutting rates and is waiting on key economic releases post Christmas. For now, although GDP growth remains below average, business surveys suggest that the services sector will continue to improve which will support the Victorian and New South Wales economies in particular.
“All of these factors continue to make Australia a very attractive destination for offshore capital, and this flood of both local and offshore activity will continue to hold the property sector in good stead for 2016.”
Investment in Australian commercial property in 2015 is set to reach $35 billion, of which domestic purchasers account for around half. Australian investors are now increasingly moving offshore, spending approximately $5 billion overseas in 2015. This is more than double the 2014 level but significantly lower than the almost $28 billion in 2007 when Australian investors were the third highest offshore investors in the world.
“Very few Australian groups are entering international markets at this stage, with around 90% of this year’s offshore acquisition activity made by two groups – Australian Super and Lend Lease,” said Ms Conisbee.
According to the report, next year this growth in Australian groups investing offshore will continue, however the types of investors in the market will be different from the previous cycle. In 2007, the most dominant purchasers were Australian institutions. In the current cycle, these institutions are increasingly being funded by offshore groups, looking to partner with them because of their expertise in Australian property. The dominant groups going offshore will continue to be Australian superannuation funds as they seek to diversify their investment into direct property. Finding the scale necessary in Australia is increasingly difficult and offshore markets provide a significant pool in which to invest in.
At a regional level, the focus remains firmly on China and the continued impact it has on all aspects of property. From the significant capital flows that are investing in property across the region to the Chinese banks that are starting to make their mark on occupier markets and the flow of tourists increasingly dominating tourist spending and hotel usage. India is also considered to be a major player next year but not so much from the outflow of capital but rather the gradual opening of that country to investment and the opportunities for regional investors that will create.