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Despite the disruption caused by COVID-19, Australia’s commercial property market remained resilient, offering unique opportunities to smart investors.
According to Rethink Investing’s director, Scott O’Neill, in an episode of the Inside Commercial Property podcast, most indicators point to a rising commercial market across the country over 2021.
“Cash rate is at record lows, confidence is at record highs, and that will equal growth all around,” the director commented.
“Most of Australia went up so, yes, there is definitely going to be an easier ride for many investors over the next few years.”
While growth is likely to be modest, Mr O’Neill said that investors will be safe as long as they “avoid COVID-affected types of businesses and buy the ones that are going through a strong period”.
To maximise today’s commercial market, the director recommended two simple steps:
1. Find a good rental market
According to Mr O’Neill, a good rental market will stand as a main driver of growth for commercial property investors.
The industrial sector, in particular, offers a very strong tenant market as of date, he said.
Further, the retail sector also has good pockets as it slowly recovers from the impacts of the pandemic last year.
“I think the next five years is going to be better than the last year, at least,” the director forecasted.
Looking ahead, Mr O’Neill said that both regional and capital city markets are bound to do well, with the exception of CBD areas if the return to office remains as slow as it currently is.
For those with a good established business that saw through the hard period last year, he predicted a good performance for the next five years, surpassing the last two years.
2. Don’t go too low on yield
Mr O’Neill also advised investors to avoid going “too low on the yield”.
“If you buy with a high yield, within reason, don’t go into the middle of nowhere to get a 10 per cent net.
“A high yield will give you room for your compression, which is the capital growth.
“That’s the X-factor that will really just make this commercial investing quite lucrative,” he explained.
In the coming years, Mr O’Neill expects commercial property to rebound quicker than residential property in certain areas.