As we push further into 2023, the commercial property market in Australia is showing remarkable resilience and strength in the aftermath of the COVID-19 pandemic, and despite stubbornly high inflation, and rising interest rates. While some sectors of the market have been more resilient than others, overall, there are positive indicators that suggest the sector is on a sound footing.

The industrial property market in Australia has remained relatively robust throughout the pandemic, and we are seeing this trend continue in the early months of 2023. The demand for industrial property has been driven by the growth of the e-commerce, defence, and medical sectors and the need for distribution centres and warehouses to service this growth.

With vacancy rates at historically low levels, upward pressure is on rents, as demand continues to outstrip supply. We have seen this trend start to influence the incentives, or withdrawal of such, from the market.

At Lemon Baxter, we expect to see significant increased investment activity in the industrial sector across 2023. Despite increasing interest rates, we have seen no reduction in sale prices for properties sold with vacant possession. While industrial investment yields have clearly started to soften, in the range of 5.5 to 6.5%.

With investment opportunities expected to hit record lows, a steady and reliable supply of new stock looks unlikely in the short term. In Port Melbourne for example, there are no warehouses on the market at present. With robust demand for logistics and manufacturing facilities keeping pressure on an undersupplied market, Lemon Baxter does not see prices slipping in the near term across the sector.

We predict if interest rates continue rising, properties sold as investments will see downward pressure on their sale prices. A higher interest rate environment will also force leveraged investors to sell, should their yield become less than their interest rates.

Always keen to talk about the market, please get in touch if you’d like to discuss further.