Chinese investors driving up commercial property prices in Australia
Commercial property prices continue to rise in Australia despite inflation and rising interest rates. According to Reserve Bank governor Michelle Bullock, the reason for the rise in prices is increased demand from Chinese investors.
The attractiveness of the local market to Chinese buyers
Wealthy buyers are particularly interested in buildings that house large fast-food chains. Retail, logistics and industrial properties are also popular. At the same time, yields on such properties are relatively low, ranging from 3.5% to 6% per annum. At the same time, 10-year Australian government bonds offer an annual yield of 4.7%. Unlike the property market, which is experiencing instability, the latter are considered ultra-safe investments. Experts explain these trends by the long-term orientation of Chinese buyers. Investors are hoping for high returns in the future when interest rates and borrowing costs fall. They are mainly interested in commercial properties worth USD 2 million and USD 20 million.
There has also been an increase in the number of migrants to Australia, which has had an impact on the property market. Wealthy buyers prefer to invest in luxury apartments and commercial properties. However, in some cities, such as Sydney, supply is limited by geography, making it difficult to build new commercial properties.
The increased demand from Chinese buyers is due to their desire to move money out of the PRC, so they are looking at various investment options. These investors have enough money to dictate their terms. They negotiate quite aggressively, offering more than the seller’s asking price to outbid the competition. They are often interested in commercial property with a stable landlord.
Commercial property market forecast
Morgan Stanley’s Australian division released a forecast of how the commercial property market should develop through 2024. According to analyst Tim Church, the sector will experience strong growth and an extremely productive period despite rising interest rates.
The main growth drivers for the sector will be:
– positive changes in the retail offer;
– an increase in the e-commerce market;
– population growth – Australia’s population will grow by 10% over the next 5 years, the best among developed economies.
Population growth and economic and political stability will drive demand for property. This will be primarily residential, but commercial property will also be in high demand.
Office space is becoming increasingly popular with investors as people return to the workplace. Demand for retail and industrial property is also on the rise. These trends are likely to continue throughout 2024 and 2025.