AUI tips commercial property rebound

Australian Unity Investments has predicted a strong recovery in the commercial property sector, with offices in particular likely to see strong rental and value growth.

There is likely to be $22 billion of capital chasing Australian commercial property assets in Australia in 2011, up from $12.7 billion in 2010 — which in itself was the fourth highest demand year on record, according to AUI’s head of property, Martin Hession.

Property demand will be locally driven by superannuation funds, but up to 20 per cent of that demand will also come from overseas, he said.

Huge demand for office space in both the Sydney and Melbourne central business districts, driven by the financial services sector, will see national office valuations increase by around 20 per cent in the Sydney CBD and 33 per cent in the Melbourne CBD by 2014, he said. Prime office rent rates will rise by around 6.5 per cent annually, he added.

Hession said that capital values have increased across the office, retail and industrial sectors recently, with too much money chasing too few assets.

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.