The Commercial Comeback of 2023 – Trends and Predictions
Worldwide inflation and rising interest rates are the two key factors affecting all property markets in 2023. At the end of 2022, over $43.6 billion were recorded in Australian commercial real estate investments. While economic uncertainty might be slowing residential and investment streams, the commercial space continues to hold steady. Long-term, investments and leases in the commercial market are considered more stable due to the contribution of commercial properties in how we engage with and live in our environment, making short-term changes less volatile. With the return of the workforce, mounting production of goods, increased household spending, and the return of international movement following the pandemic, the outlook for commercial properties remains promising as occupancy rates climb.
In the office space, Hobart CBD office vacancies have dropped by 0.2% in the 6-month period from July 2022 to January 2023, tightening from 2.7% down to 2.5%. As businesses return to in-person attendance and white-collar employment picks up, demand for longer-term office space is slowly rising, even with the shift to hybrid workforce arrangements. Currently, Hobart has no sublease space available, implying that businesses are continuing to utilise the entirety of their space and supply for accessible space in the CBD is dwindling. Recently leased office spaces in the CBD include charming heritage buildings in desirable locations such as Elizabeth Street, Battery Point, and Collins Street.
Tasmania retail trade is up 7.3% from 2022, according to the Australian Bureau of Statistics (ABS), with cafes, restaurants, takeaways, and food retailing showing steady value growth. The retail sector has been supported by a build-up of household income from the pandemic, but growing cost of living and economic uncertainty has altered consumer spending patterns, with spending getting tighter as income levels fail to keep up with the increasing cost-of-goods. Despite this, department stores, clothing, footwear and accessories all experienced a rise in turnover Australia-wide.
Industrial properties are seeing the highest demand across Australia this year. Rental prices for industrial properties are shooting up due to low supply, delayed developments, and increases in production. Last year showed industrial as the most heavily invested sector and the most anticipated point of interest for future investment. Though the industrial market is predicted to soften in 2023 due to uncertainties in the economy and high interest rates, growth is inevitable.
In Hobart and the greater surrounds, approvals for industry supply totalled $46 million, with warehouses at the forefront. Rent for leasing space saw a considerable increase per square metre at the height of 2022 with no incentive offerings, and investors were quick to add properties such as the Bellerive Quay Complex to their portfolios. However, as government support and economic conditions drop off in 2023, vacancy rates may rise, inspiring incentive offerings, and yields will begin to soften, though current market conditions are unclear and primary yields hope to remain unchanged.