TOP COMMERCIAL PROPERTY PREDICTIONS FOR 2023
After a tough year for commercial property investors, the outlook will be better in 2024, according to an expert. Ray White Commercial, Head of Research Vanessa Rader said that towards the end of 2024 and into 2025, conditions are likely to improve. However, 2024 will see some trends develop that can benefit investors.
Built-to-rent
With the housing crisis showing no sign of slowing down, there will be growing demand for residential accommodation, Ms Rader said. She stated that build-to-rent is likely to be a popular choice for commercial investors in 2024, with institutions starting to take notice while private buyers focus on smaller options like unit blocks. While transaction levels remained subdued in 2023, this is also expected to pick up next year.
Industrial assets
Industrial assets continue to remain resilient despite higher interest rates, driven by record-low vacancy data and ongoing demand. According to Ms Rader, 2024 is likely to see this trend continue with rental growth to keep rising. However, with the heightened cost of construction impacting the profitability of these assets, more distressed assets will potentially enter the market in 2024.
Given that some new developments have become unviable due to inflated construction costs, there may be opportunities to reposition or retrofit unoccupied assets in the industrial sector, giving investors an affordable foothold in the market.
Alternative assets in the education sector
Alternative assets like medical and childcare have seen strong returns over the past few years. However, values might have surged too high. according to Ms Rader. Despite the escalation in prices in the education and the tertiary sector, she believes it is still a promising area worth looking at for investors.
Universities have increased their demand for space in recent years, taking up offices as alternatives to traditional campuses. However, many institutions continue to hold large, undeveloped plots of land, presenting opportunities for the private sector to develop and add value.
STUDENT ACCOMMODATION TO REMAIN UNDERSUPPLIED IN 2024
Surging immigration is being led by international student arrivals, with demand for accommodation likely to continue rising, according to a new report.
Savills’ Australian Student Accommodation 2023 Report has found that the development pipeline of new student accommodation is already declining, with the total number of new student beds dropping by more than 50% compared to the last three years.
The report found that student accommodation is also likely to see steady rental growth in 2024 and a shift away from the inner-city suburbs of Sydney and Melbourne.
The report forecasted that Sydney will be a standout performer compared to the other capitals over the next five years. This is due to demand for popular universities like the University of Sydney and the University of New South Wales, along with an influx of lifestyle students and a historic undersupply of accommodation.
Brisbane rents, however, are expected to slow over the next half-decade due to new supply and affordability ceilings being hit. The report also found that the number of international students now in Australia is at a record level.
In the year to September 2023, there were 618,350 international student arrivals to Australia, up 88% from the previous year. Savills said international student arrivals are forecast to surpass 2019 levels in 2024 and grow to close to one million by the end of the 2025 academic year.
Savills director of operational capital markets, Paul Savitz said, “This boost in international student arrivals comes after Australian universities advised a return to in-person course delivery this year, with the Chinese government also requesting its students to return to destination universities.”
“This catalysed a rapid bounce-back in demand for higher education in Australia, which has caught many universities by surprise,” Mr Savitz stated. The lower Australian dollar has been a factor in driving demand from international students, however, they predict this could change if the exchange rate firms over the course of the year.
According to Savills’ Head of Operational Capital Markets, Conal Newland, the student accommodation sector remains a favourite among investors, despite economic uncertainty, higher construction costs and the elevated cost of debt. This is because the student accommodation sector offers consistent returns.
“Unlike many other real estate sectors, rents can be rebased every six months, or even every semester – keeping pace with inflation and adapting to a shifting economic environment,” Mr Newland said.
“These features will maintain the comparative attractiveness of the sector for investors and may lead to a further rebalancing of real estate portfolios away from commercial assets and towards residential assets such as PBSA, supporting the sector’s continued growth.”
GROWING YOUR BUSINESS WITH ASSET FINANCE IN 2024
This time of year, business owners will be sitting down and mapping out what they want to achieve financially in 2024. One of the most effective ways to grow your business is with the help of asset finance. There are a number of advantages that asset finance can offer businesses, in terms of flexibility, cost savings and freeing up cash.
Secure assets
The major benefit of asset financing lies in its ability to get businesses access to equipment and machinery, which can then be used to drive growth. Acquiring these assets enables a business to not only expand its operational capabilities but to also generate revenue above the cost of owning the equipment.
Reduce upfront costs
Asset finance allows businesses to reduce upfront costs. With the potential to fund a significant portion of the asset’s purchase cost without initial financial strain, businesses can seize growth opportunities without draining their working capital.
Mitigating depreciation risks
When purchasing high-value assets outright, businesses often carry the risk of depreciation. Asset financing shifts this burden to the finance company, providing businesses with a safeguard against the erosion of asset value over time. This ensures that your assets remain an asset to your business, both operationally and financially.
Tax deductible repayments
Asset finance offers a tax-efficient avenue for funding business purchases. Regular repayments become tax-deductible expenses, offering businesses a financial advantage. This not only eases financial burden but also improves the overall cost-effectiveness of acquiring assets crucial for growth.
Boosting cash flow and working capital
Without the need for upfront payments, asset finance can play an important role in improving a business’s cash flow management. Businesses can spread the cost of assets over an extended period, optimising their working capital. This can allow businesses to strategically invest in areas that will lead to further revenue growth and sustained expansion.
Lower maintenance costs
Depending on the terms of the asset financing arrangement, the responsibility for maintenance and repairs may fall on the finance company. This shields businesses from significant, unexpected expenses and ensures that assets are well-maintained.
No collateral
Unlike traditional loans that often require homes or properties as collateral, asset finance relies on the value of the asset itself as security. This lack of stringent collateral requirements makes asset financing a flexible and less restrictive funding avenue. Businesses can leverage this flexibility to tailor financing arrangements that align with their own growth goals.
