and population growth are two key drivers of Australia’s commercial real estate industry. The country’s commercial property landscape has transformed from simply providing a place for people to work or shop. Increased accessibility,
, and digital connectivity are just a few trends in this industry in recent years. Further innovation in the sector will be required to maintain steady growth, particularly with an unpredictable environment for many segments due to the current economic climate, with fluctuating interest rates, construction costs, and
.
Office property performance
Prime office real estate across Australia saw varied performance in 2023 due to slow leasing activity in some markets. Several cities, including Perth, Melbourne, and Adelaide, recorded elevated incentives and
office vacancy rates throughout the year. Office properties in Sydney, Canberra, and Brisbane had lower vacancy rates than other Australian capitals, with
prime office rents highest in New South Wales. Office property investment declined in 2023 due to the slow re-pricing of properties, resulting in lower transaction activity. Interest in co-working spaces has slowly risen, with some businesses preferring to rent out spaces short-term to suit their office space requirements. With more companies
shifting toward hybrid working models, flexible office spaces are becoming a popular way to lower operating costs by avoiding long-term contracts for offices with low usage.
Are retail rents stabilizing?
Australia’s retail spaces, such as shopping centers and
LFR centers, have been impacted by changing consumer habits in recent years, with more consumers migrating to online shopping and changing their discretionary spending due to inflation. Nonetheless, net face rents stabilized across most markets for shopping centers, LFR centers, and other retail properties in the third quarter of 2023.
Average retail rents for shopping centers ranged between 1,259 and 1,748 Australian dollars across the country, with the highest average rents recorded in NSW. While the retail property transaction volume fell in 2023, shopping centers dominated activities, with a major deal taking place between Lendlease and Fawkner Property in the third quarter, with the latter purchasing the Settlement City Shopping Centre.
Industrial property: low vacancy and rising rents
Australia’s industrial property sector is thriving, recording high leasing activity and near-zero vacancy rates in 2023, with rents subsequently on the rise. In a recent survey,
property professionals indicated that they expected industrial capital values to continue to increase over the next year. Growth in this segment is closely related to
rising demand for warehouse space from online retailers, e-commerce platforms, and postal and transport businesses. Mega warehouses, automated facilities, and logistics hubs are needed to expand Australia’s e-commerce fulfillment capabilities. Online retail giant Amazon and
grocery chains Coles and Woolworths are just some names looking to occupy more industrial space. Notable industrial property transactions recorded in the third quarter of 2023 included a pre-lease for 60,000 square meters in Melbourne by Super Retail Group, as well as pre-leases by Amazon in Sydney and Energy Queensland in Brisbane. DHL and Australia Post are also expanding their postal and delivery facility occupancy.
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