Commercial Real Estate Financing in 2013
There are indications that demand for commercial real estate financing will be strong in 2014. In 2013, sales in the commercial property sector exceeded $17 billion, and a record of $20.6 billion was set by the market in 2012.
2014: A Crowded Market
While the trend looks positive for commercial real estate sales in 2013, the crowded market may present challenges for property investors. David Rees from Jones Lang LaSalle has stated that 2013 figures show that investors were willing to take on more risk by investing in assets with shorter-weighted average lease expiries or in assets that required capital expenditure. He added that investors were looking for non-CBD properties that had given features.
While investors are willing to take on more risk, in 2014 expected supply additions will be the lowest since 2002. According to Rees, leasing markets are expected to stabilise and business confidence will rise, which might lead to greater demand for commercial property financing throughout 2014.
Vacancies Peaked in 2013
Reese suggested that vacancies in Australia’s CBD office markets have already peaked. While they probably peaked in late 2013, Rees said that they are likely to remain high in 2014 and 2015. He noted that because vacancies traditionally shift into secondary-grade properties, it is possible that demand for primary-grade properties will drop in 2014.
Peter Carstairs of Investa Office agreed with this view. Carstairs suggested that while 2013 had weak demand for office properties throughout Australia, Investa’s research showed that the market will recover in 2014, though some office properties will pick up more quickly than others. He added that Sydney and Melbourne will lead the recovery in this area, and that tenant demand will further drive demand for office properties.
This is positive for commercial property investors and suggests that financing demand may be higher in 2014 than 2013. Investa’s research projected that direct investment in commercial property is to reach $130 billion in the coming year, which would see the sector reaching pre-global-financial-crisis numbers.
Major Projects
A major commercial development to look out for is the Sydney IMAX Retail Entertainment Complex at Darling Harbour. Grocon and Markham Corporation have lodged applications for a redevelopment to transform the site into a $500 million-plus location. UBS Grocon Real Estateis also looking to develop a number of office properties.
Additionally, Google will be vacating its current location at Pyrmont, Sydney, to move to the larger Ribbon development at Darling Harbour.
Regional Trends
Stuart Crow from Jones Lang LaSalle recently suggested that new sources of global capital would boost equity through the Asia-Pacific region. Investors will increasingly be willing and able to take on more risk by entering less popular markets such as Indonesia and Vietnam. Joint-ventures will be a popular vehicle for foreign investors looking to break into new commercial property markets.