After a strong 12 months, industrial property is set to see further upside according to a leading valuer. Nick Barlow, valuer from Suburbanite says industrial real estate will continue to be the standout performer in the commercial sector well into 2022.
Mr Barlow believes that with the 2021 lockdowns, landlords were faced with difficult arrangements and many tenants struggled to keep their businesses afloat. He says last year there was huge pressure on industrial land availability which increased growth and put further downward pressure on yields.
However, while industrial property will likely again be the standout performer in the commercial sector, growth rates will likely continue to fall as yields are already compressed.
Businesses classified as essential services are also likely to be the most in-demand tenant for commercial investors in a trend Mr Barlow believes will be in place for a number of years. He says essential services tenants such as medical, food and beverage, fuel and childcare have been standouts and that this positive movement is expected to continue. However, yields have continued to compress as landlords seek security and a return that is still better than the banks can provide.
In terms of businesses that will struggle in 2022, Mr Barlow feels it’s still going to be a difficult time for CBD offices and retail, with many people choosing to continue working from home. This is contrary to local retail which is actually benefitting from local shopping and the working from home phenomenon.
The shift towards regional areas might also finally slow down this year, according to Mr Barlow. Small regional areas that enjoyed an influx of local travellers during COVID will see visitors returning to normalised levels throughout the year which will impact these markets accordingly, he says.
In particular, serviced apartments and Airbnb’s will also struggle throughout 2022 as they begin to feel the pinch of last year's downtime and last-minute cancellations.
Mr Barlow believes as conditions steady, better-located properties will continue to be sought after and those in secondary locations – which have done well during favourable conditions – are usually the first ones to feel the pinch when some of the heat comes out of the market.
Nick Barlow's top pick for 2022 is Brisbane – it has better value than Sydney and Melbourne with activity ramping up due to the Olympics and continued interstate migration.
Ultimately, whether to invest in commercial or residential isn’t mutually exclusive.
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