What's Happening in the Real Estate Sector?

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Recently Newcastle was lauded for having the lowest A-Grade vacancy in Australia at (2.7%).  This is a tremendous result, but is the market really that good?  It’s my belief that the take up in A-Grade space is a clear signal that some of the mature firms around the City are looking to better their image and provide a working environment conducive to employee’s expectations.  What the mining boom taught these firms was that the days of providing a desk, a computer screen, stairs to walk up, poorly lit, poorly ventilated, showerless work space were over.  These spaces lost staff as the employment market grew tighter.  Firms had to stop the brain drain.  So as the new space came on line firms in the B-Grade space jumped ship.  This is shown by the increase in vacancy in the B-Grade space from (7.0%) to (13.3%).

 If that’s what’s happening in the Newcastle CBD, what’s happening in the suburbs?

 Raine & Horne Commercial just released their industrial Average.  This measures the average vacancy across the major industrial estates of the Region.  Our research shows this Average has doubled in the past (3) years from (3.54%) to (7.59%).  The increase is mainly mining related with the mining belt suburbs of Thornton, Beresfield and Rutherford averaging over an (11%) vacancy.  The news isn’t all bad with the service suburbs of Cardiff, Steel River and the like hovering around 6% and in just (3) years 167,000m2 of industrial floor space has been added across the board.

 Our message is, the Region is undergoing change.  The mines aren’t spending and the style of manufacturing is changing away from traditional factories with earth floors and grimy change rooms.  Many of the traditional fabricators have wound up or have down-sized whilst the survivors have significantly changed their ways.  The declining Australian Dollar is assisting these sectors but a change is needed and change is always difficult at first.  What we will see is a manufacturing sector that in (5) years, will be different, more technology based and more resilient after surviving this period of change.

 The industrial sector also encompasses warehousing of goods and this has experienced little to no change with the advent of the Hunter Expressway and the change of ownership of the Port.

The investment sector of the commercial and industrial real estate market is seeing declining yields as a result of the increased number of investors looking to place money in traditional fixed assets and the fact that the banks keep reducing interest rates.  This is just simple supply and demand.  Investors that own income producing properties are reluctant to part with them due to the returns being generated between (7.5%) to (11%) net.  Whilst the number of investors seeking to buy is increasing as the margins between the returns and bank loans become more attractive.

Steven Dick
Director Raine & Horne Commercial

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