Lack of ‘distress’ a sign of commercial property strength

A big sign that property markets are heading to a downturn is an increase in the number of listings.

While a steady increase or decrease can mean a mild change in market direction, a big jump upwards generally means people want to get out.

For commercial property, it is possible to track distress by looking at the listings themselves – and searching for keywords such as “receiver/manager”, “mortgagee”, “administrator”, “liquidator”, “liquidation” and “voluntary administration”.

Commercial Insights: Subscribe to receive the latest news and updates

The presence of these words in a listing almost always means the vendor is in trouble and needs to sell.

Since 2013, we have been tracking key words related to a distressed listing on realcommercial.com.au. Access to finance is likely to be an issue for some investors, and many are certainly more cautious. But for now, we are seeing the lowest levels of distress in over six years.

Last year there were only 82 listings with these key words. At the peak in 2013, we saw almost four times that amount.

While distressed listings were highest in 2013, the majority of them were in Western Australia where the mining boom began to unravel.

The biggest driver of distressed listings is – not surprisingly – economic stress. Right now, we are seeing decent economic growth conditions and importantly for commercial property, unemployment is particularly low at just 5%. In Sydney, it is now at its lowest level since 1974.

Access to funding may be tight but the fundamentals of commercial property tenant demand are looking particularly good.

While we are seeing very few signs of distress right now, there are two areas that are at higher risk in 2019.

The first is development sites. With the residential market slowing dramatically and record high prices paid for sites over the last few years, there may be some signs of stress emerging.

The second is shopping centres. As online retail continues to gather pace, and we continue to see a high number of store closures, the ability to maintain current rental levels is under threat.

For all other property types, there may be fewer buyers, but there are also likely to continue to be far fewer distressed sellers.

Nerida Conisbee is the chief economist for REA Group.