- It has been challenging to predict the future given the new "normal"
- WA has seen a substantial recovery in industrial real estate since July 2020, thanks to the mining sector
- I interviewed the Director of MOSCOM, Gerry Petropoulos, who represents commercial tenants.
Ever since the norm was interrupted in 2020 by Covid, it has been challenging to predict the future. Recent global events also had an impact on the Australian market.
In WA, industrial real estate has seen significant levels of recovery since July 2020, with retail and office not enjoying the same bounce back; retail and office have only seen improvements more recently.
As numerous investors left the market, residential rents increased significantly. Interstate and international travel and immigration resumed after the borders reopened. Interest rates have gone up this year, yet refinancing numbers have stayed behind.
These sure are unusual and extraordinary times.
CoreLogic has also shown that in October most capital cities and regional areas had a decline in price value, yet, one region stood firm, namely, regional SA.
An audience with Gerry Petropoulos
I interviewed the Director of MOSCOM, Gerry Petropoulos, who represents commercial tenants.
Mr Petropoulos is based in South Australia, but MOSCOM assists small to larger-sized cooperations that need real estate assistance across Australia. Mr Petropoulos shared his thoughts on the Commercial market in South Australia.
Wouter Jellema (WJ): How is the market in your area at the moment?
Gerry Petropoulos (GP): Purchaser demand has decreased significantly. There is no longer the belief that prices only go up. As interest rates increase, the yields are no longer compressing as they were during the record-low interest rates. As such, prices have decreased due to the expanding yield required to service the cost of debt.
WJ: What are you expecting for the short and long term for property in your area?
GP: For the short term, I am expecting prices to continue to fall. Over the long term is more challenging to predict due to domestic and international volatility. However, the Modern Monetary Theory of money has failed, and inflation has become entrenched in the economy. Therefore, I predict that the long term will also result in falling or stagnant prices.
WJ: What are the challenges for investors?
GP: The challenge for investors currently invested will be serviceability, given the monetary tightening.
WJ: How are rising living costs and interest rates affecting the market?
GP: Without a doubt, the rising costs of living are negatively affecting commercial real estate prices. Worker shortages and increasing input costs impact businesses’ bottom lines. There is a perfect storm of inflation from the demand and supply side. Coupled with rising interest rates, it is a recipe for disaster. I will be astonished if we do not head into a recession.
WJ: Has the bubble popped everywhere in the SA capital, or are some suburbs still delivering price growth?
GP: The bubble has not yet popped but is about to do so. Our interest rates are back to where they were in 2013. It would be unrealistic to believe prices can continue to maintain their upwards trajectory. If the cost of capital increases, then the prices must fall to reflect this. Central banks cannot come to the rescue as they did during the 08/09 Recession due to record inflation and sovereign debt they have currently. The way to reduce inflation this time will be to pop asset bubbles. Every single asset class will be affected.
I advise investors to ensure their investments are operating as efficiently as possible and maintain a strong cash position. There are solid rural opportunities as the Covid boom did not impact these areas as much as the capital cities. Areas focusing on agriculture, farming, or industrial production will have the best opportunities for investors.
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Disclaimer: This article contains general information and should at no time be considered advice to the reader. The reader should always verify their situation with the relevant certified professionals before taking any further steps.
