Demand for commercial property exploded in 2021, due to record-low interest rates. During that time, the ‘spread’ (or differential) between the cash rate and average commercial yield rose to as high as 500 basis points, according to Ray White Group’s head of research, Vanessa Rader.
However, once interest rates started rising from mid-2022, the spread fell to between 50 and 150 basis points (see graph) – “well below the historical yield spread averages of 280 to 350 basis points”. Looking forward, Ms Rader believes that imminent rate cuts will “contribute to moving the spread back to acceptable levels”.
“While we may be approaching the bottom of the market, the current landscape presents both challenges and opportunities,” she says.
“Despite the overall downturn, astute investors can find promising prospects, particularly in high-quality assets and properties with future growth or development potential. This period of market correction, though difficult, opens doors for savvy buyers to acquire assets at more favourable yields. Those who can identify longer-term opportunities or untapped potential in existing assets may be well-positioned to benefit.”
Costi Cohen director Tas Costi is noticing the same trend – “we’re are seeing a huge flight to quality, with buyers looking for great deals in passive, set-and-forget investments up to $20 million. In the last few months we’ve seen a 45% increase in investment buyers looking for largely fast food, service station and childcare assets with strong national tenants.”
To discover how Costi Cohen can assist with your commercial property search, please call us on +61 02 8934 3414 or email [email protected].
