- Owner-occupiers previously took advantage of market conditions to sell on leasebacks
- That may be shifting due to the challenges of securing the right lease
- The tight market may mean some businesses simply have no place to call home
While the rise in owner-occupier properties could be a reasonable assumption for the residential market (indeed a strong aspiration too) due to the shocking state of rentals in Australia and of course the Great Australian Dream, this article will be about the commercial sector.
In Knight Frank’s Navigating the Parth to Performance Outlook Report 2023, the most favoured Asia Pacific city/sector combinations saw Sydney and Melbourne industrial among the top three for 2021, with Tokyo build to rent placed third. Tokyo’s BTR took pole position for this year, with Sydney and Tokyo industrial equal second, followed by Seoul Industrial. The citation goes to ANREV investor intentions survey 2022.
Most favoured APAC city/sector combinations by year
| #1 | #2 | #3 | |
| 2022 | Tokyo BTR | Sydney Industrial And Tokyo Industrial | Seoul Industrial |
| 2021 | Sydney Industrial | Melbourne Industrial | Tokyo BTR |
| 2020 | Melbourne Office | Sydney Office | Tokyo BTR |
| 2019 | Melbourne Office | Sydney Office | Sydney Industrial |
| 2018 | Sydney Office | Melbourne Office | Sydney Industrial |
| 2017 | Sydney Office | Melbourne Office | Sydney Retail |
Source: ANREV investor intentions survey 2022, as cited in Knight Frank Outlook Report 2023
Broadly speaking, most sources are expecting 2023 to be a more predictable year, with inflation to peak, for Australia at least that will be around 8%, and interest rates to become more certain.
For context, the report forecasts British inflation to peak at just under 12%, with the next highest inflation to be experienced in Europe at under 10%, and America a tad higher than Australia.
Among the predictions of the report, Australia will lead the world as a global downturn looms.
Why will Down Under defy the downturn?
The report notes Australia’s strong domestic economy will be one thing carrying momentum into 2023, with the key reason: exporting commodities. Australia’s stable and long-term growth has also played a part in building the reputation for being a safe haven for investment.
Turning tenants into owner-occupiers
Among the trends and highlights in the industrial sector, the report included:
- Strong tenant demand to remain,
- Shift to a period of moderation following significant expansion,
- Focus to be on strategic improvement, efficiency, nd resilience,
- Major players likely to vacate older properties,
- Cost cutting to return to sustain margins in tougher economic environment,
Another major shift included: who is buying and selling, when, and why.
The report found that many owner-occupiers looked to capitalise on market conditions and sold on leasebacks to free up capital.
Owner-occupiers were also beaten to the chase for vacant properties, often outbid by larger investors.
“This resulted in a shift away from owner-occupation for middle and upper tier business owners.”
Knight Frank Outlook Report, 2023
With the challenges around securing a lease for the right price in the right place, the report said some businesses are moving to become owner-occupiers once more; this comes particularly as landlords have the luxury of frequently having multiple offers on the table, and large international and ASX listed tenants typically and naturally being favoured.
Another factor potential switchers to owner-occupier status: “With owners keen to access reversionary rents in a rising market for inner and middle ring assets, the lease terms offered may only be 2-3 years.”
Security for tenure is therefore “business-limiting” the report put, “if not terminal.”
Finally, multistorey, multistory, or multi-level (whichever you prefer) developments in the Australian industrial sector may be coming to an inflection point.
The report says constraints on multistorey industrial in Australia include planning regulations and underlying value of land.
With rental growth, sever supply shortages, and changing economics, it seems multilevel industrial may be reaching an inflection point in Australia – or at least parts of the east coast.
South Sydney was highlighted in the Knight Frank report, with a CBRE report in April this year also highlighting the potential of multistory in South Sydney, and a Colliers report in October examining the trend of multistorey likewise coming to a similar conclusion.
That said, places like Western Australia are unlikely to see multilevel properties, as Chair of the REIWA Commercial Network Committee Mike Rowe told The Property Tribune in October this year.
