Weakening dollar a boost for commercial property

Declining oil prices and a weakening dollar are like to provide ideal conditions for the retail and industrial property sectors, an economist believes.

CBRE head of research Australia, Stephen McNabb, forecast a positive year for the commercial property sector on the back of the declining dollar.

"Commercial property has tended to perform well after periods of currency decline and we expect this to be the case through 2015," he said.

"This isn't a surprising result, for much like lower interest rates, a lower Australian dollar offer stimulus to the economy.

"The correlation is strongest for the retail sector, particularly discretionary spend aligned sectors; although, this is more likely the result of other factors coinciding with a softer currency — i.e. lower oil prices and interest rates.

"The fall in oil prices puts around $6 billion back into consumer wallets (based on currency prices versus the 2014 average), while 50 basis points of interest rate cuts would deliver $3-4 billion to household wallets, both boosting spending capacity.

"Additionally, domestic retail volumes are directly supported as consumers substituted from imports and as domestic and international tourism grows. The one issue created by the lower Australian dollar for some retailers will be profit margin squeeze, but this is less of an issue for offshore retailers with global input sourcing contracts.

"The industrial sector benefits through more traditional channels, particularly logistics.

"A rise in export volumes and domestic demand supports logistics volumes. There is also support to local manufacturing as competiveness is boosted but only for those sectors with sufficient domestic scale. "All up, we see the lower Australia dollar as supportive of improving demand conditions across a broader base of occupiers of commercial property over the next year."

While McNabb said the weakening dollar was likely to boost demand for commercial property, he said demand for office space had the weakest correlation with currency values.