Low unemployment rate, a key factor in the security of commercial real estate

Low unemployment rate, a key factor in the security of commercial real estate

Mathew Tiller, head of research at LJ Hooker Group, offered his predictions for the future of the industry.

In what he describes as a tough market, accentuated by rising interest rates, cost of living and supply chain issues,

He believes the 3.5% unemployment rate reported by the Australian Bureau of Statistics for June – the lowest in nearly 50 years – is a key factor making commercial property ripe for investors.

This number is a significant drop from the 7.5% reported at the height of the pandemic and coupled with 5.7% underemployment in May, means 385,800 more people are employed now than in May 2021 , underscoring the strength of Australia’s post-pandemic economy. recovery.

“Commercial real estate has benefited from improving employment figures,” Tiller said.

“For commercial property owners, greater job security and the end of COVID-19 related lockdowns have supported the recovery in spending. The ability for people to shop, dine and travel without restrictions has made it easier to rent and re-let from small suburban stores and up to larger regional malls.

Additionally, the return to the office – evidenced by declining office occupancy rates as employers push for increased productivity resulting from working with a centralized location – is another factor attracting investors to the commercial sector, as more people employed lead to greater adoption of office space.

On the other hand, tight labor markets have made it harder for businesses to hire new employees and meet the additional demand. In addition, additional household spending put upward pressure on inflation, which RBA has consistently held back with cash rate hikes since May.

Additionally, the reopening of international borders has spurred population growth, subsequently benefiting student accommodation, as well as hotels, resorts and leisure assets, further boosting the commercial sector.

Despite the positivity in the air, Mr Tiller spoke of the fact that challenges will remain for the sector – inflation remains the most relevant threat as the world’s central banks “aggressively raise interest rates and tighten their monetary policy positions.

“This has had a ripple effect on government bonds whose yields have risen significantly since the start of this tightening cycle. This is important: large institutional investors use government bonds as a benchmark when they invest in commercial real estate assets, and strong growth in government bond yields may reduce demand from these investors.

Mr. Tiller pointed out that “retail rents remain stable, but some sought-after neighborhoods are improving. Neighborhood malls and other suburban retailers have benefited from the “work from home” movement and vacancies in these areas have tightened. »

He concluded that “office rents have yet to see a major change, but rising occupancy levels are expected to see this change over the next 12 months.”

Low unemployment rate, a key factor in the security of commercial real estate

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Last update: September 05, 2022

Posted: September 06, 2022


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