Commercial development on the rise

Despite residential building experiencing a slowdown, new data shows that commercial building approvals are seeing a sharp uptick. According to The Australian Bureau of Statistics (ABS), non-residential building approvals grew 39.8% last month, well ahead of the residential results which recorded a 7.7% improvement.

Over the past 12 months, the value of residential approvals has declined 3.15% while the value of non-residential developments continues to grow, up 3.61% on the year to February 2023. The continued commitment to develop commercial assets in this environment is mixed across regions and asset classes.

So far, Victoria is showing the greatest value of new development, increasing their approvals by 19.56% over the year, followed by NSW at 8.77% and Queensland up 4.45%. South Australia, ACT and Western Australia saw approvals fall over the same period by 42.56%, 37.99%, and 2.91% respectively.

Office assets continue to see the greatest volume of planning activity, with a 25.69% increase in approvals this year. The Industrial sector is also seeing demand rise given the overall limited vacancy in this asset class, seeing a 20.35% increase over the year to February 2023, dominated by warehouse developments. Meanwhile, retail and healthcare assets continue to grow, up 5.28% and 4.29% respectively, while aged care has fallen 3.47%.

Ray White Commercial Head of Research, Vanessa Rader, said that despite growing approvals the recent RLB Crane Index that observes current construction activity by counting cranes on the Australian skyline has recorded an overall dip across the country both for residential and commercial assets.

“Data from Q1 2023 highlights 836 cranes currently across the Australian skyline; 293 were new additions while 325 were removed, resulting in a net loss of 32 over the last six months. Residential, however, continues to be the dominant asset class representing 63.6% of all cranes sitting relatively stable with only a three-crane loss.” Ms Rader said.

“Coastal markets such as Gold Coast, Sunshine Coast, Sydney’s Central Coast and Wollongong all recorded residential additions, together with Perth and Adelaide; while Brisbane, Melbourne and Sydney all have declined,” she said.

“Given the mismatch between demand and supply for the residential market, pressure on development will likely continue which may see these crane rates grow across the residential segment in the coming year.”

Ms Rader said that across the commercial markets, there are some mixed results. “Despite Melbourne’s strong approval pipeline, this region saw the greatest decrease in cranes over the last six months, losing 17 as all asset types saw a reduction, signalling an end for some projects in the CBD and inner Melbourne,” she said.

“Over the last 12 months, however, Melbourne saw a net decline of nine non-residential cranes, behind Perth who lost 10, notably in the education and healthcare sectors, while Brisbane’s results remain stable. Sydney’s annual growth has been off the back of infrastructure projects with civic, civil, education and healthcare all recording new crane additions while commercial, data centres and hotels have declined.”

She said given the strong approval pipeline these results could again rebound, however, high construction and financing costs may continue to dampen activity, particularly for those sectors such as office and retail, which have had reduced demand levels.

 

Office rents continue to increase across the country

Demand for office space is slowly starting to recover, with a new report showing Sydney, Brisbane, Adelaide and Perth rents are moving higher.

According to Cushman & Wakefield’s quarterly Office MarketBeat, higher-quality supply, steady tenant demand and the impact of inflation have seen office rents increase over the past three months.

Cushman & Wakefield’s Head of Research Australia and New Zealand, Dominic Brown, said rents are trending higher but tenants are also becoming pickier about what they want.

“We’re seeing prime CBD office rents continue their upward trajectory in most markets across Australia, with Sydney setting the pace in the new year,” Mr Brown said.

“While demand for office space in Australia’s largest office market remains stable, the time between inquiry and decision is being extended. Tenants are more discerning given the uncertain economic conditions, and incentives remain higher as a result.”

Sydney’s CBD recorded a 2.9% increase last quarter, with prime net effective rents rising from $930 to $960 per square metre, driven by new, higher-quality buildings coming online and a larger share of premium-grade buildings in the prime basket. This helped take the rolling annual increase in effective rents to 6.9%, including a 7.7% rise in face rents.

Prime effective rents in the Melbourne CBD rents remain steady and a slower return to work has kept incentives high, the report said. Across Victoria, there was a 30% increase in occupier enquiry, as tenants leverage favourable conditions. With several significant leasing transactions in the pipeline, confidence is expected to grow over 2023 as occupiers continue to seek out high-quality accommodation to attract and retain staff, the report said.

During the quarter, premium gross face rents in Brisbane’s CBD jumped 2.1%, climbing from $965 per sqm to $985 per sqm. This was largely driven by the uptick in face rents while incentives remained mostly unchanged. This supported a rolling annual increase in prime gross effective rents of 10.2%, the largest increase of all states. Cushman & Wakefield agents note that with limited supply forecast over the next three years, tighter vacancy will likely place upward pressure on rents.

Meanwhile, growth in the Perth CBD office market of 6.3% was supported by a 4.5% increase in prime net effective rents in Q1, lifting from $370 to $380 per sqm. According to Cushman & Wakefield, leasing activity is growing, particularly for pre-fitted space given rising construction costs. There are also signs that incentives have peaked during the quarter.

Adelaide CBD prime net effective rents increased by 3.5% in Q1, moving from $255 to $264 per sqm, leading to an increase of 8% over the past 12 months. Demand for quality stock remains high across the Adelaide CBD market, with the largest deals during the quarter being pre-commitments for upcoming buildings.

Cushman & Wakefield’s Research Manager Queensland, Jake McKinnon, said while we’re seeing a variation across CBD markets, around the country the market trend is clear. Demand is continuing to build in most locations, with premium buildings and inflationary conditions pushing rents higher.

“With larger tenants generally slower to commit, fitted-out speculative suites are providing the most activity among smaller occupiers. Prime quality space continues to experience solid absorption at the detriment of secondary stock.” Mr McKinnon said.

Using asset finance for your medical or dental practice

Establishing a medical or dental practice is a big undertaking. One of the main hurdles is the high cost of the sophisticated equipment that’s needed to get started. One of the most effective ways to purchase specialised medical equipment is with the help of asset finance. Here are some of the benefits of using asset finance from independent lenders as opposed to traditional banks.

Financing specialised equipment

Not all mainstream lenders will be able to finance specialised medical equipment and medical professionals might be better served looking at alternate lenders who operate in that space. Using a finance broker is the most effective way to compare your options across a range of lenders and help identify those that might be able to offer finance.

 

Second-hand purchases

Purchasing second-hand medical equipment can be a cost-effective solution for medical or dental practitioners, however, not all lenders are willing to finance used equipment, especially if it doesn’t come with a warranty. Once again, finding the right lender that can assist with your requirements will be important given the specialised nature of the equipment.

Finance options

Medical professionals with a good credit score and at least five years of industry experience can often get set up quickly with lenders. Some lenders like to see that the borrower also has other assets such as property, even though loan isn’t secured with that asset.

Faster approval times

Asset finance applications with major lenders often come with longer processing times given they are not setup to easily handle these types of asset loans. Independent lenders can offer faster loan approvals, however, if speed is an issue, this is also something you should talk to your finance broker about.

Extended loan terms

Specialised lenders can offer improved loan terms that might be valuable for new businesses. These extended terms allow you to repay the loan without negatively impacting your cash flow.

Flexible solutions

Depending on what stage the business is at, medical professionals might have very different needs, including how much money they can put down and how long they need to repay the loan. The more inflexible your requirements are, the more important it is to compare a range of options from a host of different lenders.