The latest RICS Commercial Property Monitor is pointing to a change in investment sentiment for Australian commercial property, as well as an uplift in capital value expectations for the year ahead.
Property experts have seen positive movements in investment trends across commercial property in Australia during the fourth quarter 2021, while owners continue to diversify the way office space is used.
Across all sectors, investment enquiries rose for the fifth successive quarter, leading to capital value expectations rising for the year ahead.
The strength of the industrial sector continues to standout, with a net balance of plus-63 per cent of respondents expecting prime industrial values to increase over the next 12 months.
The outlook is also positive for prime office values, as a net balance of plus-23 per cent of respondents foresee an increase during 2022 (the strongest reading since quarter four 2019).
Looking at the alternative sectors, respondents project an uplift in capital value expectations for aged care facilities and hotels.
However capital values for data centres and multifamily residential are likely to rise at a slower rate than in quarter three.
Furthermore, respondents anticipate a fall in capital values for student housing, but to a lesser degree than in the previous six quarters.
As a third of respondents (plus-31 per cent) believe the market to be in the early phase of an upturn, despite some impact from the latest COVID wave, respondents are more optimistic about the future of Australian commercial property, with owners in the office sector looking at how to attract employees and occupiers back.
As countries learn to live with COVID, 50 per cent of respondents in Australia still believe an office is essential for a company to successfully operate.
However, 77 per cent of contributors report that they are seeing an increase in demand for more flexible and local workspaces and over half (54 per cent) have reported an increase in space allocation per desk following the pandemic; all highlighting how occupiers are making the office place safe and attractive for employees once more.
But traditional set ups are changing as 58 per cent of respondents are seeing a re-purposing of office space.
Interestingly as Australian office space looks to be repurposed, investment enquiries from Australia increased this quarter and overseas slightly increased this quarter.
Growth across the industrial sector continues to intensify with availability of units failing to keep up with demand.
This quarter, 52 per cent of respondents saw an increase in the number of enquiries for industrial units while minus-13 per cent reported a decline in availability.
This imbalance means that over half of respondents anticipate industrial rents rising in the coming three months.
Industrials are also the only sector anticipated to see any significant rental and capital value growth over the coming 12 months too.
The retail sector continues to experience a drop in occupier demand.
While investment enquiries also slipped this quarter with minus-2 per cent of respondents reporting a fall in domestic enquiries and minus-11 per cent reporting a fall in foreign investment enquiries, this continued negative trend is less pronounced than in 2020.
In the midst of the pandemic minus-74 per cent of respondents advised that capital value expectations for the year ahead were set to fall.
This quarter the net balance is minus-eight per cent, suggesting that momentum has significantly improved since mid-2020.
RICS chief economist Simon Rubinsohn said: “Although sentiment remained a little flat in run-up to the year-end looking at the aggregate RICS indicator for commercial property in APAC, there predictably continues to be significant divergence both at a country and sector level.
“Australia and New Zealand continue to show the greatest buoyancy according to key metrics, with real estate linked to the provision of data centres, logistics, aged care and residential performing most strongly from a sector perspective across the region.
“The numbers for China continue to paint a mixed picture which in part reflect some of the ongoing challenges affecting areas of the property development industry but critically, the real estate market is now viewed as being cheap or fair value by around three quarters of respondents to the survey.
“Moreover, projections for prime real estate are generally positive looking twelve months out.”