As we reflect on Australia’s commercial real estate market dynamics in 2023, it becomes evident that each sector has navigated unique challenges and opportunities. In the realm of office spaces, the year unfolded with a nuanced performance influenced by sluggish leasing activity, specifically in offices, which has remained a challenge in major cities, specifically Melbourne and Sydney, since COVID-19. Other commercial property sectors, such as industrial real estate and healthcare real estate, continue to thrive.
In 2023, the performance of prime office real estate in Australia exhibited diversity, influenced by sluggish leasing activity in specific markets. Cities such as Perth, Melbourne, and Adelaide experienced heightened incentives and elevated office vacancy rates throughout the year. In 2023, office property investment declined due to property re-pricing, leading to reduced transactions. Simultaneously, interest in co-working spaces grew, as businesses preferred short-term rentals to meet dynamic space needs. Suburban commercial office spaces, particularly in major cities like Melbourne, stayed in demand for investments due to the appeal of shorter commutes. Learn more about Melbourne office spaces here.
In recent years, changing consumer habits, marked by a shift towards online shopping and adjustments in discretionary spending due to inflation, have impacted Australia’s retail spaces, including shopping centres and large format retail (LFR centres). Nevertheless, during the third quarter of 2023, net face rents exhibited stability across most markets for shopping centres, LFR centres, and other retail properties. The average retail rents for shopping centres ranged from $1,259 to $1,748 nationwide, with the highest averages recorded in NSW. Despite declining retail property transaction volume in 2023, shopping centres remained prominent, according to Statista.
Industrial Real Estate
Australia’s industrial real estate sector is experiencing robust growth, marked by substantial leasing activity and virtually non-existent vacancy rates in 2023, leading to an upward rent trend. The low industrial real estate vacancy rate in prime commercial suburbs of Melbourne and Sydney is particularly noticeable. Capital values of industrial real estate are likely to increase in the next year as demand continues to outweigh supply, particularly in competitive price brackets.
The flourishing nature of the industrial real estate sector is closely tied to the surging demand for warehouse space from online retailers, e-commerce platforms, and postal and transport enterprises. Mega warehouses, automated facilities, and logistics hubs will remain in demand to enhance Australia’s e-commerce fulfilment capabilities.
According to Statista, major players such as the online retail giant Amazon and grocery chains Coles and Woolworths actively seek to expand their industrial footprint. The third quarter of 2023 witnessed noteworthy industrial property transactions, including a 60,000-square-meter pre-lease in Melbourne by Super Retail Group. Learn more about industrial warehouses here.
Healthcare and Medical Real Estate
The healthcare sector, seen as one of Australia’s prime real estate segments, has witnessed a surge in transaction volumes in recent years. Despite its smaller scale compared to core sectors, institutional investors can leverage opportunities as the healthcare sector expands. Opportunities exist in aged care, mental health, general practice, and allied health. Furthermore, Australia’s healthcare sector is projected to contribute to 19.3% of overall employment growth from 2022 to 2032.
Healthcare and medical real estate, known for extended WALEs of 8 to 25 years in the premium market and 4 to 7 years in the secondary market, attracts investors seeking long-term tenancy in commercial real estate. Investment demand in this sector is strengthened by robust lease covenants, featuring triple net leases and established tenants with a proven track record.
CPN Commercial Group is your strategic partner, providing insights and expertise to navigate the nuances of each sector.
Whether you’re eyeing suburban office investments or delving into Melbourne’s booming industrial market, CPN Commercial Group is ready to assist you. Click here to learn about some of the best suburbs for commercial real estate investment in Melbourne. Connect with CPN Commercial Group to turn insights into action and make informed decisions that shape your success in 2023 and beyond.