Hot property: Commercial property operators have largely performed well

The shift towards online shopping has led to mixed results for commercial property operators. While industrial property operators have benefited from increased demand for warehousing space, traditional retailers have been adversely affected by the online trend.

Australian commercial property operators have largely experienced strong growth over the past five years. Continued foreign investment growth, and declining borrowing costs have benefited property operators over the period. Revenue from the Retail Property Operators industry is expected to grow at an annualised 6.0% over the five years through 2017-18, while the Office Property Operators industry is expected to grow at an annualised 11.3% over the same period.

While commercial property operator revenue has risen strongly over the past five years due to strong growth from industrial and office property operators, vacancy rates for office property operators have also increased drastically over the period. In Perth and Brisbane, vacancy rates reached record highs, largely due to decreased mining in Western Australia and Queensland. Conversely, vacancy rates for office property in Melbourne and Sydney declined slightly over the period, reflecting stable demand and growth in population.

Historically, retail property was the most lucrative segment in the commercial property market. Typically, strong retail sales determine demand for retail property, as growth in retail sales drives demand for retail space. However, the increasing uptake of online shopping has seen the importance of retail property decrease in recent years, with many consumers finding cheaper deals online and circumventing traditional bricks-and-mortar retailers. Consequently, the Retail Property Operator industry’s revenue is expected to decline by 13.9% in 2017-18, to $22.8 billion. Despite this, revenue from retail property operation has increased over the past five years, largely due to increased investment activity, with many new retail property locations opening at the start of the period.

Supermarkets have proven resilient to the troubles affecting Australia’s retail sector. Anchor tenants, such as large department stores and supermarkets, have helped support retail property operator growth over the past five years. Typically, anchor tenants draw customers to a shopping centre, which benefits surrounding retailers. Consequently, anchor tenants have increased in importance over the period.

Industrial property operators have benefited from increased online shopping over the past decade. Structural changes in the Retail Trade division related to the rise of online shopping have supported these operators. The ‘bricks-and-clicks’ business model, which integrates a physical storefront and online sales strategies, has become increasingly prevalent among retailers. This has led to the establishment of large, decentralised warehouses that can distribute goods directly to individual households. Furthermore, the arrival of large international firms such has Amazon has seen demand for industrial property increase strongly over the past five years. Revenue from the Industrial and Other Property Operators industry is expected to increase at an annualised 13.2% over the five years through 2017-18, to $17.2 billion.

Commercial property operators have faced mix operating conditions over the past five years. The increasing uptake of online shopping has seen the relative importance of retail property decrease in recent years, as consumers bypass traditional retail spaces. However, this change has benefited industrial and other property operators, with demand for warehousing and storage facilities increasing over the same period.

 

Related industries:

Office Property Operators

Retail Property Operators

Industrial and Other Property Operators

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