- Debt has reached an all-time high of $42.8 billion
- Almost doubled in the past five years
- Debt in the hotel sector has also increased with confidence growing in tourism
Thanks to soaring e-commerce sales, commercial real estate debt has reached another all-time high, according to Melbourne-based property company Yarraport.
According to Yarraport co-founder, Kathy Johnson, industrial debt rose by $7.5 billion last year, reaching an all-time high of $42.8 billion.
In fact, industrial debt has almost doubled over the past five years.
“Demand for distribution and logistics centres is on the rise as online purchases have grown exponentially with institutional tenants requiring large distribution centres and warehouses,” explained Ms Johnson.
“The industrial market has also seen record low yields that traditionally have been a premium for retail and commercial properties.”
Kathy Johnson, Yarraport co-founder
Online retail trade continues to increase its market share of overall spending with online sales now accounting for 9% of total retail sales – a 160% increase over the year – representing about $44 billion.
Significant commercial real estate deals include Sandhurst Retail and Logistics who recently acquired 100 hectares of developable Epping industrial land, which is one of the last major land parcels available for such development in Melbourne’s northern corridor.
Tourism among the fastest-growing sectors
Interestingly, the tourism sector has seen its debt rise by 12% as demand for domestic travel returns, despite recent lockdowns which saw over 11 million Australians in lockdown.
“Although the latest restrictions will temporarily dampen this sector again, we expect demand will return once people are allowed to move around again,“ said Ms Johnson.
“The hotel sector is relatively small with only $11.7 billion of the $271 billion which is dominated by office, retail and industrial.”
Through repositioning, there are many opportunities within this sector, including the proposed sale of Stamford Land’s hotel portfolio, expected to be worth around $1 billion.
Richard Jenkins, Plan1 Project Management and Consultancy director, noted that the number of hotel rooms in Australia reached an all-time high as of March 2021, with occupancies showing signs of recovery since late last year.
Signs of improvement can be seen in the December quarter with Australians taking more overnight trips than at any time since the start of the pandemic,” said Mr Jenkins.
“A number of hotel owners and operators have continued to place their faith in the domestic-led tourism recovery despite occupancy rates still well below 40 per cent.
“Melbourne currently holds an occupancy rate of under 40% with room revenues down 65% at $53 a night compared with a year ago.”
Richard Jenkins, Plan1 Project Management and Consultancy director
Ms Johnson concluded by noting debt held by foreign banks had risen and are $3 billion higher than a year ago. Foreign banks now account for 23.4% of total commercial real estate debt, up from 20% two years ago.
“Over the past year, Australian CRE debt held by foreign banks has increased by 5% with debt exposure held by the foreign banks in the office sector hitting all-time highs,” she said.