Economists point to slowing economy as the main culprit
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A new report has advised property owners to prepare for a decrease in commercial property demand from tenants and investors as the economy slows down.
Westpac’s Economic Insight report on the country’s commercial property market predicted that low vacancy rates would rise while rent increases could be constrained in the coming year.
Satish Ranchhod, senior economist at Westpac, said that he expects a moderate economic downturn – but conditions could still get worse.
"A deeper downturn in growth could significantly dampen demand from occupiers. It could also prompt increased nervousness among investors, prompting a tilt towards ‘safe haven’ investments like bank deposits, even in the face of further interest rate reductions,” Ranchhod said.
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Ranchhod also pointed out that the country’s commercial property market had a good run mainly due to strength of tenant demand for space and investor appetite for properties – however, that might change soon.
“Business confidence has plunged and businesses’ plans for expansion have been scaled back,” he said. “We expect that these conditions will dampen occupier demand for new space over the coming year and will result in some increase in vacancy rates from current low levels. Those conditions are likely to constrain increases in rents.”
However, Ranchhod still has a positive outlook in the long-term, and expects investor demand and commercial property prices to rise over the coming few years.
“Although the economy is slow, interest rates are very low and are likely to remain so for some time. That’s making commercial property an attractive option compared to many other forms of investment,” Ranchhod said.
