Commercial property boom to roll into 2016

The commercial property sector is bracing for even higher asset values, a flurry of deals and more mergers and acquisitions next year with executives backing the ebullience of 2015 to roll on.

While executives warn that value growth and deal flow may slightly moderate in 2016, they still believe it will be one of the busier years for buyers and sellers, adding that there was still a touch of yield compression to come.

The sector that remains uncertain is residential, with many accepting that home price growth will taper in the new year.

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ISPT chief executive Darryl Browning said demand for investment property would remain strong after a near record 2015.

“That is due to the absence of yield around the world. There is still that search for yield from both local and international investors,” Browning says.

We’ll continue to see reasonable retail conditions and we think that retail sales and rents will grow about 3-3.5% in the year

He adds that yields in the major investment sectors — office, retail and industrial — will continue to fall, despite some major deals this year being transacted on yields of about 5%.

“It’s low, but then again interest rates are staying at historical lows. The central banks are talking about increases in official interest rates but they are not actually doing it,” he says.

Office market yields are expected to continue to fall in 2016.

Stockland CEO Mark Steinert highlights retail conditions as one of the bright spots for the coming year.

“We’ll continue to see reasonable retail conditions and we think that retail sales and rents will grow about 3-3.5% in the year,” he says.

Dexus CEO Darren Steinberg says that office rental growth will be boosted in Sydney and Melbourne, while leasing conditions in the struggling Brisbane market will also improve.

JLL Australia chief executive Stephen Conry says 2016 will be one of the strongest years ever for transactions, but notes it is too early to tell whether it will match 2015 levels, which could see a sales record of more than $30 billion.

There is still that search for yield from both local and international investors

“It will be certainly be in the top three or four years of transaction volumes,” Conry says.

CBRE national director Josh Cullen says improving leasing markets, particularly in Sydney and Melbourne, will keep investment demand strong.

“The capital flows will continue because there will be genuine growth coming through the leasing market,” Cullen says.

Colliers International managing director John Marasco expects more local superannuation funds to look to international markets for investments.

Investment demand will remain strong in Melbourne and Sydney.

“Finding the scale necessary in Australia is increasingly difficult and offshore markets provide a significant pool in which to invest,” he says.

As for residential, Stockland’s Steinert says Brisbane is on track to deliver price growth of around 3-4% for the year, while Melbourne and Sydney are likely to remain flat, and Perth will show softness.

“Some of the apartment submarkets and inner parts of (Melbourne and Sydney) could see some price retracement given the level of increases,” he says.

On corporate activity, JPMorgan analyst Richard Jones expects more consolidation in the real estate investment trust sector due to the gap between high property prices and moderate equity prices.

“I think there are prospects for privatisations — which is effectively a REIT being taken out — while that disconnect exits,” Jones says.

This article originally appeared on www.theaustralian.com.au/property