Businesses forced to close, downsize and offshore has caused vacancy rates to surge around the country, and rents to fall, yet commercial property prices continue to rise. This divergence has the central bank concerned the “risk of a large repricing” in commercial property is increasing.
The Reserve Bank of Australia wrote in its March 2015 Financial Stability Report, “The divergence between rising prices and falling rents in office and industrial, and to a lesser extent retail, property has widened further since the previous Review, with an associated fall in yields. As a result of these developments, the risk of a large repricing and associated market dislocation in the commercial property sector has increased.”
According to the central bank, the correction of commercial property prices has “been responsible for a number of episodes of stress in the banking sector.”
The central bank reports conditions in Perth and Brisbane are particularly weak with the plunge of commodity prices forcing drastic downsizing among the resource companies. Compounding the problem is a significant amount of new office space will come on line in the next couple of years, causing further pressure on the market.
Adelaide and Canberra are not far behind. In Adelaide, Property Council SA executive director Daniel Gannon says empty CBD office towers should be converted into residential apartments to arrest the spiralling commercial vacancy rate.
The central banks says a correction could be triggered by a number of factors, such as increased supply “that prompts a reassessment of valuations”, or a sharp fall in foreign investor demand caused due to rising global interest rates or adverse conditions in the investors’ home country.
» Financial Stability Review – The Reserve Bank of Australia, 25th March 2015.
» ‘How we’ll turn CBD offices into residential spaces’ – Adelaide Now, 26th March 2015.
Looks like the advertising campaigns of late on both radio and newspapers pitched at mums and dads to invest in commercial property is getting results.
The ‘sheep’ are certainly being lured into their investment pens ready for the shearing by the big end of town.
New multi-storey developments growing at an increasing rate, daily,all over Sydney.Existing commercial buildings (many that have been vacant for a decade)now being converted to residential apartments.The scale of this growth,in Sydney,is gigantic.I have never seen anything like this in the past 50 years.$1,000,000 for a new 2 bedroom apartment in Lane Cove(no views).For who are these towers being built?No comments from the media,or anyone.The roads,except for 3 or 4 tollroads,have been the same for nearly half a century.How will we all get around in suburbia?Local young adults are a small minority on these developments.Just last week I saw Maori steelworkers leaving a site at 5pm.25% were women.Many of these workers are on 10 hour shifts doing hard physical toils not sitting in a chair playing with the laptop and getting payed.Ask any of the workers, on these sites, if they will get a loan ,for a unit,I don’t think so.
I remember,as a 17 year old grasshopper,working on a site in Randwick in mid-seventies.The finished apartments were $23k.Carpenters and other trades were making $500 per week cash payed every Friday.The money masters then were the same as today.So what has changed.The growth of greed.
The ‘system’ is going to collapse big time.