Commercial and retail property outlook – a safe haven from the market storm?

In the US and Britain, property markets have come under serious pressure as the international credit squeeze has worsened. For the moment, Australian property appears to have escaped unscathed – but will commercial, retail and residential property remain a safe haven for investors?

Colliers national director of investment sales Jon Chomley says while listed property trusts are likely to become sellers in the local commercial property market, strong fundraising on wholesale markets should more than make up for any slack in demand.

“You look at the underlying fundamentals in each market across Australia and you see an undersupply of office space, strong demand for leasing and rental growth in most cities,” Chomley says. “So while LPTs are unlikely to be major buyers, that strength means we’ve still got the strength of the wholesale markets and I think there will be more wholesale funds established,” Chomley says.

When it comes to retail property, continuing strong consumer demand means many investors still see value in the sector, even given the problems shopping centre Centro Property Group has faced.

“Retail property relies on consumer demand staying up and that seems to be continuing – there has been strong competition for Centro properties in Australia and a lot of the major super funds are still looking to implement investment diversification plans that include a retail component, so the market is strong for the moment,” Chomley says.

But despite its current strength, the property sector is not immune from the uncertainty of the market and economic outlook in the short to medium term. Chomley says continuing negative conditions could see property markets reach a breaking point.

“We’re all watching closely – when you start to see yields move back out or oversupply of space in both retail and commercial sectors, that’s when you start to revise where the market is at,” Chomley says.

On the residential side of things, the crucial determinant of health for the sector is confidence. Housing Industry Association chief executive Harley Dale says while conditions are good at the moment, a combination of sharemarket volatility and possible interest rate rises could hit house purchasing decisions.

“It’s really all about sentiment – the longer and more sustained it is, the more Australian households will pull their heads in and that would be a main conduit for weakening in the Australian economy that could feed into housing,” Dale says.