Recovery well underway for Australian commercial property sector

With the rebound in the value of commercial property, many investors are looking afresh at diversifying to add retail, office or industrial assets to their residential portfolio.

A new report from global commercial real estate company Cushman & Wakefield has found a recovery in this sector well underway, with collective investment across markets totalling $10.1 billion in the second quarter of this year – more than double the first quarter’s tally.

Its research indicates that, having already passed the bottom of the market, the retail sector is poised to lead the recovery in values, with a 16 per cent upward repricing from Q4 2024 to 2030.

Meanwhile, the Commercial Property Price Index, which tracks values across sectors, forecasts that, between Q1 2025 and 2030, office will bounce back 28 per cent and industrial asset prices will increase 19 per cent.

“There is close to $70 billion in capital across the Asia Pacific sitting on the sidelines looking for the right time to re-enter the commercial property market,” says Cushman & Wakefield’s head of international research, Dr Dominic Brown. “Australia remains a preferred destination for capital across the region.”

Financial advisor Ben Nash, the founder of Pivot Wealth and author of Virgin Millionaire, says the value of commercial property is much more volatile than residential as it’s so intricately tied to the ups and downs of the economy.

In addition, residential has low vacancy rates across the country and is in short supply, while the pandemic hit commercial hard with lockdowns and work-from-home.

“But retail and office spaces have lower vacancy rates now, and they’re due for some positive momentum,” Nash says. “But your choice depends on the purpose of your investment.

“If you look over the long term – to reduce the risk – commercial has performed more strongly, with a growth rate of a bit over 6 per cent around the country and a rental yield just under 4 per cent, which is an almost 10 per cent annual return. Funding that by debt for most people can create a serious level of wealth.”

Commercial property is often the choice of people as they move into their mid-40s – are at the peak of their earning capacity – and already have residential property, advises Helen Tarrant of Unikorn Commercial Property. With most commercial assets, the income is so good, they don’t need extra money to service it.

“So, they can still buy and build their portfolio while not outlaying too much cash as the rental returns are much higher,” she says. “With retail, though, I’d always prefer medical tenants, vets or allied health services over restaurants and cafes, which have the stigma of a lot going bust.

“Office is also now going better, apart from in Melbourne, where that sector was hit hard by the pandemic. But many people are now offering incentives in terms of yield and there are a lot of really good tenants, like financial planners, lawyers, and doctors looking for offices now. Savvy investors are investing more in office before everyone else jumps in.”