Why such fantastic growth for commercial properties?
RECENTLY I HAD THE PLEASURE OF BEING INVITED TO THE SPRING 2017 RAINE & HORNE COMMERCIAL INSIGHTS EVENT. HOSTED BY RAY HADLEY, THE EVENT INCLUDED A NUMBER OF BRILLIANT SPEAKERS SUCH AS NERIDA CONISBEE FROM REA, MARTIN LAKOS FROM MACQUARIE AND ANGUS RAINE, EXECUTIVE CHAIRMAN FOR RAINE & HORNE.
Whilst there were many fascinating topics brought up by the speakers, the one point that really grabbed me was just how much commercial properties have performed over the past 12 months.
Angus Raine noted that commercial values in North Sydney are expected to rise 15% for the 2017 financial year and Northern Beaches are looking to increase as much as 30%.
In discussing the reason for the growth, two of the major factors were:
- The continual rezoning of commercial buildings for residential or mixed-purpose use.
- Banks restricting their policies resulting in fewer and fewer development of new commercial projects.
This low supply has placed continual demand on the commercial market, resulting in the uplift in value.
From a finance perspective, I thought it was interesting to hear that the banks restriction of policy has added to commercial properties increasing in value. The opposite has been the case for residential property, which has flattened out over the same period.
What we have seen in the commercial finance space has been a number of smaller and private funders emerging to take the place of the major banks whos policies have been so restrictive that they have been impossible to deal with.
Will this continue to be the case? Certainly for the medium turn the answer is yes. However, as banks get paid out from this round of development funding, capacity will once again free up and bank policies will revert back to what was previously the case pre-property boom.
In any event, success in the commercial finance space right now is all based on thinking outside the box and having relationships with niche funders who are willing to step in where the majors have failed.