Commercial, Retail Steady Despite Economic Headwinds

Population and employment growth will lead to big opportunities for developers and investors, according to an economic outlook panel presenting as part of The Urban Developer's annual market outlook series.

While the global economy is still feeling the shocks of COVID-19 for the first half of 2020, the Australian market continues to move forward.

Presenters Brian Haratsis, Sarah Hunter, Scott Haslem and Michelle Ciesielski briefed the industry on the state of the economy, markets and investments during a series events held in Melbourne, Sydney and Brisbane over February.

Macroplan executive chairman Brian Haratsis said jobs were moving outside the CBD because of mining investments, population growth and flexible office spaces.

“The forecast is there will be a 28 per cent increase in mining investment [in Australia], it’s unbelievable,” Haratsis said.

“That will translate in Queensland—when mining picks up, Queensland does well.

“Professional, scientific, technical and health are big—85 per cent of jobs will be not in the CBD [in the future], they will be elsewhere.

“Health and construction and education are growing quickly, they are [also] typically not in the CBD. ”

Investors look to Australia

Haratsis said international investors were looking at Australia for opportunities.

“It’s the lowest bond rate in 30 years at the moment, that means there’s likely to be yield compression in Australia [so] it will cause more institutional investment,” Haratsis said.

“I know from my experience in Melbourne and Sydney, that Europeans want to invest in Australia so they’re looking to retail and commercial, that will weigh heavily in terms of yield compression.”

When it came to industrial development Haratsis said Melbourne was growing because there were real constraints on land availability and cost in Brisbane and Sydney.

According to CBRE research the average net rent per square metre for Melbourne was $91, Brisbane was $117 and Sydney was $137 in the fourth quarter of 2019.

"Yields and rents are interesting in Sydney, Melbourne and Brisbane because Melbourne is less expensive, that's because we have enormous amounts of industrial land available,” Haratsis said.

“You can buy and build in Melbourne for the price you can buy land in Sydney that’s why Melbourne was getting the large format warehouses and that's why they are interested in the inland rail.”

Hope for retail

There was also cause for optimism in retail as the market had bottomed out and population growth was likely to offset the impact of online shopping, according to Haratsis.

“Retail sales growth is a 2.8 per cent and that’s a good solid number given the conditions that we are in with high mortgage debt.

“The inherent population growth is so strong in the inner and middle rings that it will overtake any online impact.

“The inner-ring is a fortress because with 400,000 or 500,000 people (coming in) you could buy every shop and they would be full in the next 5-10 years because of the population growth,” Haratsis said.