AUI positive on commercial property

Rental rates and values in commercial properties are tipped for strong growth on the back of huge demand for office space in the Sydney and Melbourne central business districts (CBDs).

Australian Unity Investment head of property Martin Hession said there was likely to be $22 billion of capital chasing Australian commercial property assets in Australia in 2011, compared to just $12.7 billion in 2010 – which in itself was the fourth highest demand year on record.

Hession said that capital values had increased across the office, retail and industrial sectors, with too much money – including from overseas investors – chasing too few assets, while super funds will be among the most significant local investors.

National office valuations will increase by around 20 per cent in the Sydney CBD and 33 per cent in the Melbourne CBD by 2014 on the back of strong demand from the financial services sector, he said. Prime office rent rates would rise by around 6.5 per cent annually, he added.

Hession tipped slower growth rates in the industrial sector although supply in the sector is also very low, and will take a long time to clear because new properties have to be approved and built.

Retail rental growth would increase only in line with inflation as the sector was impacted by lower consumer confidence, online shopping, and rising inflation and cost of living, he said.