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Commercial rents defy fragile property prices

Adam Zuchetti
Adam Zuchetti
08 October 2018 1 minute readShare
handshale two businessmen cityscape commercial rents declining property prices

With all the hype about a slide in home values, the situation facing commercial property values has been lost in the noise, with important ramifications for SME leaders.

According to research and listings firm Commercial Property Guide, commercial property prices are under pressure but have remained stronger than residential prices.

In its asking sale price index, office prices posted falls for five consecutive months from April 2018, and growth of a virtually negligible 0.08 of a percentage point in September. That compares to a peak monthly change of 3.86 per cent growth in prices in July last year.

Retail has been more choppy, reflecting the difficult trading conditions for retailers. Since a fall in February 2017, prices had grown throughout last year until reversing in April 2018, and fell for three of the five months since.

Industrial property has shaken off the gloom though, posting growth in every month since April 2017 (apart from a statistically negligible 0.01 of a percentage point fall in February this year). In June of this year, prices shot up by a healthy 2.1 per cent for the month.

When it comes to leasing, however, Commercial Property Guide figures suggest that landlords are currently enjoying a much easier ride than sellers. Although the news for tenants isn’t so great, with rents continuing to outstrip inflation.

“The level of rent growth is down from the peak of late last year. However, it still represents a healthy national annual increase of about 7 per cent [per annum] in commercial real estate in August 2018,” the company said in its September outlook, the most recent monthly outlook available at the time of publishing.

“The rise in commercial rents for all property types across the major capital cities reach[ed] a peak rate of increase in November 2017. The annual change in lease prices was about 11 per cent. Since then, rent increases have been slowing to a little under 8 per cent in August.”

Meanwhile, inflation is currently sitting at 2.1 per cent, according to the Reserve Bank.

Demonstrating the impact such steep increases in retail rents are having on many businesses, chocolate bar chain Max Brenner collapsed last week, citing cost blowouts including rents as part of its downfall.

Business owners have been the subject of warnings about tapping into household equity, given that residential property prices in Australia have been falling continuously since around September last year, following years of strong gains.

Latest figures from research firm CoreLogic show that prices in Sydney and Melbourne are down by 6.2 per cent and 3.7 per cent, respectively, over the last 12 months, although Melbourne’s values have fallen more rapidly than Sydney’s so far in 2018.

Perth has also seen values slide by 3 per cent over the past year, while Brisbane and Adelaide have remained fairly stable, posting meagre increases of just 0.6 of a percentage point and 0.7 of a percentage point, respectively.

Commercial rents defy fragile property prices
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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