Is there a lack of supply?

THE THREE CONTRIBUTING FACTORS DISRUPTING SUPPLY AND DEMAND

Whether through a slew of editorial, experience or anecdotal evidence, prospective buyers and vendors have gleaned the impression that there is a lack of supply of residential property in the Melbourne market.  Is the same phenomena true for Commercial property?

The answer to this is not straightforward. Why? Simply because the ‘Commercial’ property sector, has several asset classes – Retail, Commercial and Industrial. Clearly the property landscape has been affected by the lockdown period and a corresponding shift in consumer buyer behavior.

To unpack the three contributing factors to commercial property supply and demand deviations, let’s start the snowball rolling with Retail property trends.

In this sector, currently lack of supply is definitely not an issue, and the trend for the foreseeable future is that this supply will only increase. Whilst many retailers have closed their businesses, an increasing number of retail tenants are no longer ‘retailing’ but ‘e-tailing’. Therefore, moving into the multichannel, click and collect, or e-commerce mode. Given the accelerated take up of this e-commerce trend, it seems that there well may be still more fall out in retail property demand to follow. Naturally as a function of this consumer purchasing trend -while there is a lot of retail property supply, there is also less demand. There is also a compound effect.

Significantly, the supply of the different asset classes of Commercial property is all interlinked. This trend in retail property plays out like a domino effect on the supply and demand of industrial property.  Consequently, as a result of this shift in purchasing behavior, more and more property owners/ investors are pulling out of Retail to move across categories into Industrial. So, this brings us to the contributing factors to the diminishing supply in Industrial. The second core reason for a disruption to plentiful supply of industrial properties, is that of the continuing low interest rates we are experiencing. More and more owner occupiers/ businesses are seeking to purchase their industrial warehouse or factory, rather than to lease it.  So naturally demand to purchase is up and increasing. This imbalance is unlikely to correct itself while interest rates remain so low, allowing purchasers to buy and experience less outgoings with their mortgage repayments than their lease.

The third factor? Another inducement to purchase industrial property has been driven by the new legislation and rules around leasing and managing residential property, deeming it highly probable that some residential owners might switch across to industrial and commercial property. The new residential policies for managing property have become extremely strict including a whole lot more maintenance involved, new ways of managing tenants and arrears, presenting in many cases a more exhausting process for landlords. Managing an industrial property is appearing to be far less arduous and time consuming.

(The Residential Tenancies Act 1997 and regulation 16 of the Residential Tenancies Regulations 2021.) https://www.consumer.vic.gov.au/housing/renting/changes-to-renting-laws/resources-for-practitioners

So, the advice? As a current owner of an industrial property, now is obviously the time to sell, or sell and upgrade. If you are an investor waiting for a lease to end, then now would be an ideal time to put your property on the market. Those who have anticipated and responded to this new landscape, and promptly jumped to place their industrial warehouses on the market, are seeing some really good results.

The advice to prospective purchasers – Ensure you are working with an experienced informed and proactive commercial agent to help you uncover an industrial property that is not actually on the market. What you really need is your commercial agent acting on your behalf as a Buyers Advocate.

Insights from Matt Brown and Steven Tsimos.