Investors urged to target commercial property now before market recovers

Commercial property investors should take advantage of good deals now in order to lock in big returns as the market recovers, a new report warns.

The Australian Property Market Monitor 2009, released by LJH Commercial and BIS Shrapnel, shows that while prices will dip over the next two years, a strong recovery is forecast for the medium-term.

While the report also forecasts commercial property prices to fall 1.3% during 2010, it expects 2.4% growth in 2011 followed by 4.5% growth during 2012 and 2013.

The report claims the market is currently under pressure from an imbalance between buyers and sellers, with private investors making up the majority of buyers.

Mark Brimble, LJH Commercial general manager, says the condition of the current market proves now is the best time to buy, and investors should move in quickly to obtain the best gains as the market reaches its bottom.

“All indicators are that now is a good time to buy. There has been pressure on businesses during the downturn, but as confidence begins to return, commercial investment is going to turn around and there will be more investment in business, and any commercial returns you have at that point will deliver fairly sound results.”

“For individual investors as well, the ‘mum and dad’ investors, they should take heed of what is available out there and be aware of the returns that can be obtained from commercial holdings, whether it be a number of investments or just one in which you invest yourself.”

The report predicts Sydney, Melbourne and Adelaide to see the first signs of growth, with the retail sector posed to recover first.

“In most sectors, investment yields reached their tightest (lowest) point in late 2007. Yields have now been softening for close to two years. In that time, we’ve seen yields blow out by at least 85 basis points (for regional shopping centres), but more typically by 100 to 200 basis points across prime markets. In secondary markets, the damage has been greater,” the report says.

“Initially, the adverse yield movements were – at least partially – offset by rental growth, so that the impact on capital values was dampened. But, increasingly, falling rents are now compounding softening yields and generating marked declines in property values… On balance, we expect to see further softening of yields over the next six to 12 months before most markets stabilise.”

David Green-Morgan, commercial research director at DTZ-Research, agrees that now is the best time to buy.

“Demand is weak and rents are dropping, and we expect that trend to continue when employment peaks middle of next year, but we will see that improve.”

“The next 12 months will provide the best buying opportunities. A lot of people are saying they don’t need to sell right now, and we are seeing purchasers starting to worry just a little that if they don’t act soon, they’ll miss the bottom of the market. It’s very difficult to specify a date or month, but in the next six to nine months we’ll see buyers picking up in activity.”