Over the last 12 months property has been at the front of headlines due the black swan event we all know called COVID 19. The Flexibility of working from home playing out in has caused a disruptive time for 2020 in the commercial Property market. Yield has been such a key focus over the last 12 months given the exceptionally low interest rate environment and uncertain economic backdrop in the marketplace.

It is the inflationary hedge that comes with real estate with the enduring benefits which have predated Covid 19 and also the GFC. This is not just with commercial but residential rent reviews have a large linkage to CPI has meant as the economy grows the economy continues to inflate rents going forward. Also post the GFC there has been a large involvement from the government with enormous amounts of stimulus being deployed into capital markets and the most spending since the great depression. In recent figures employment rates have stabilised and also retail spending has returned firmly.

Investor demand in 2021 has increased from offshore investors as Australia has low infection rates and hence a stable an attractive place to invest. Capital spend will be at least double this year. Office and retail will have a rebound in the 2021 going forward. Consensus is a strong V shaped recovery over the next 12 to 24 months.

Australia home process are likely to rise another 15% or so over the next 18 months being boosted by record low rates, economic recovery, and FOMO, but expect a slowing in the pace of gains as government home buyer incentives are cut back, fixed mortgage rates rise, macro prudential tightening kicks in and immigration remains down relative to normal. Cash and bank deposits are likely to provide poor returns, given the ultra-low cash rate of just 0.1%. Although the Aussie dollar is vulnerable to bouts of uncertainty and RBA bond buying will keep it lower than otherwise, a rising trend is likely to remain over the next 12 months helped by strong commodity prices and a cyclical decline in the US dollar, probably taking the Aussie dollar up to around $US0.85 by year end.

With all this information in mind some key points to look at when investing in commercial and residential property are:

• What is the Gross yield you will receive after all fee’s an expense going forward?
• What is the demographic of the tenant, for example are your tenant’s professional’s or a blue-chip long-term company’s? What type of tenant is already in place or who you do you want to have in place? Will they be affected by Covid 19 and be able to work from home?
• Also look at the location of growth. For example, you will see a migration towards regional areas over the next 2 years as people decide to move away from cities to take advantage of lower property prices. Hence allot of professionals will make the move to these areas and even start new businesses.
• When dealing in commercial property it is always sound to seek legal advice when dealing with Tenants and also setting up Leases. A one off consultation can save many headaches down the line.
• Lastley do your research in the area and if you can buy below market value from the start you are ahead even before you start. This gives you a cushion to any small down turns in the market in the short to medium term.

The Spendathon through the covid period will add a strong expansion in pricing to not only the commercial property market but residential as people look to park their money in growth assets while they can’t spend it on overseas trips.

angus

angus@angusstewartinvesting.com.au

T 07 4124 7108 | M 0404716957

www.angusstewartinvesting.com.au