LOW RATES AND FEDERAL BUDGET LIKELY TO INCREASE DEMAND FOR COMMERCIAL PROPERTY
The announcements of a business-friendly federal budget and a further cut in the official cash rate will stimulate further investment in commercial property from local and offshore investors, say a number of analysts and real estate brokers who spoke with The Australian Financial Review last week.
In the article, CBRE’s head of capital markets, Mark Granter, is quoted as saying “In the lower for longer interest rate environment, there will be more capital chasing yield over the next 12-18 months. Interest is across all sectors, led by office and retail. Institutions backed by offshore capital are the most active, followed by private groups. We expect a little more cap rate compression, though not to the same degree as the last 12 months.”
Ken Atchison of Atchison Consultants said that a rate cut combined with a stimulatory budget designed to increase spending would be positive for the rental side of the commercial property sector and for retail property.
According to James Maydew, AMP Capital’s co-head of global listed real estate, Australian commercial property was in a “competitive position” as global investors lifted their allocation to defensive, hard assets “offering yield and a spot of growth”.
CBRE’s head of strata projects, Tom Tuxworth, said low interest rates would encourage more businesses to buy their own premises and hold them in a self-managed super fund, adding “It’s still cheaper to buy your own office than lease, and it’s still more tax efficient to hold property in an SMSF than in your own name.”
A senior official at one of Australia’s biggest banks believes the RBA could take further action on interest rates in a matter of months.
Speaking with Your Investment Property last week, Peter Jolly, global head of research for global markets at National Australia Bank, said that NAB believes the RBA will most likely leave the cash rate untouched for a stretch, while a further cut in the near future remains a distinct possibility.
“Our current forecast is that they will sit at 1.75% for a good period, but I think it’s very obvious to say that there is another risk that they may need to cut rates again.
“I don’t think there’s going to be anything in the next couple of months, but if we do get another low inflation print…then it’s definitely possible that they may cut rates again in August. Generally, we see interest rates staying quite low in Australia over the next few years.”