2023 has been a tricky year for commercial property investors. However, the tourism and industrial sectors have continued to be the strongest performers. According to Ray White Commercial, over the past 12 months industrial assets have seen a 1 per cent increase, bringing total returns to 5 per cent this year – just behind tourism which has yielded total returns of 5.3 per cent.

The increase in occupancy and daily room rates for accommodation, coupled with increased domestic and international visitor nights, has seen the tourism asset class reign supreme for 2023.

Ray White Commercial said medical assets has also been a key area of investment interest this year, however, underlying pricing has seen negative capital growth, bringing total returns to 2 per cent – the same rate as retail assets. Meanwhile the office market continues to struggle.

“The challenges of the office market since COVID-19 have not improved, impacting vacancies, effective rents, incentives and yields making it the loser of 2023, recording declines in capital value of -9 per cent over the last 12 months,” they said.

“These results are indicative of national averages, with some office markets outperforming the average, including Brisbane CBD, which saw total returns remaining in positive territory for this period, followed by Perth CBD which recorded -0.8 per cent total returns.”
 

Ray White said commercial assets have been considered quality long-term investment options. “The rapid rate of escalation over the last few years; spurred on by inexpensive and available finance together with the desire for large institutions, funds, and smaller private buyers to diversify their portfolios; is all part of the volatility that these assets recorded,” they said.

“Considering the longer-term trends, industrial has cemented its number one position with both five- and ten-year average returns outstripping all other asset types at 15.3 per cent and 13.9 per cent respectively. Over this longer term, the evolution of the industrial asset class has been outstanding.”

Ray White said that over the last few years, industrial assets have become incredibly popular after once being considered a “dirty” asset. They said the medical sector in particular has been growing in popularity.

“Over the last 10 years this asset class has enjoyed 13.6 per cent annual growth and will continue to perform well given our growing needs in this space, high population appreciation and an undersupply of quality offerings, ensuring medical as an institutional asset class is here to stay,” they said.

“While tourism has had a strong 12 months, this asset class has had to bear the negative results seen during COVID-19, and over the last five years growth has sat at just 2.9 per cent per annum. Although, over the longer term, tourism has outperformed other asset types with a 10-year average of 9.1 per cent which is in line with retail.”

They said retail had a tough time during the pandemic, resulting in a five-year average growth of just 1.2 per cent, while office assets have been hit the hardest this year.

“The difficulty over the last few years, regarding limited demand and high supply in some markets, has hindered the returns for this historically attractive commercial asset class,” they said.

“Both five and ten-year returns sit at a similar level of 5.8 per cent and 5.5 per cent respectively. Unfortunately, future expectations surrounding occupancy and investment demand may see further short-term declines in total returns making the historic long-term prospects for offices more difficult.

“Encouragingly, we may see a resurgence in offshore, institutional and private activity capitalising revalued assets, while a strong movement by the private sector to bring staff back into our office assets could improve fundamentals in 2025 and beyond.”