According to Knight Frank's latest forecast, the Reserve Bank of Australia is likely to further reduce its rates next year, which will help boost investment activity in Australia. the real estate sector.
The persistent slowdown in the labor market, weak wage growth and low inflation could push the RBA to further relax its monetary policy, by reducing the official cash rate two more times, to achieve 0.25%.
Ben Knight's chief economist Frank, Ben Burston, said the sharp decline in interest rates would drive the investment market to new heights, thus extending the cycle of price of real estate.
"In many ways we find ourselves in unfamiliar territory as the global economy and the real estate market cycle enter their eleventh year since the last downturn – a record expansion in some respects", a- he declared. "Despite a prolonged cycle, we still do not see the resurgence of inflationary pressures and higher interest rates."
Read also: The RBA leaves rates unchanged – but for how long?
Burston said that lower interest rates would help support the demand for commercial real estate assets as investors re-evaluate the compression potential of returns.
"The strong demand from institutional investors for prime real estate assets was highlighted in 2019 and is expected to continue next year," he said.
In addition, given the improved economic outlook and continued capital growth, Burston said that small private investors are about to become more active next year.
Foreign investors should also contribute to the investment activity. They are likely to be attracted by the relatively high yields in Australia compared to many cities in the Asia Pacific region.
Consequences of Rate Reductions
Knight Frank identified three market impacts that could result from rate cuts.
While the outlook is expected to improve, growth will likely remain low by historical standards. In this scenario, companies would be more cautious and absorption would remain moderate.
Personal market performance may also converge to some extent, particularly as economic and employment growth will be balanced across states.
Finally, monetary easing could be a major stimulus that could stimulate activity in the financial markets and drive up values.
Read also: Sydney, Melbourne likely to remain vulnerable?
Is the office building lit up?
Capital growth is expected to accelerate a bit over the next two years after this year's downturn. This is particularly true in the office and industry sectors, said Chris Naughtin, associate director of research and consulting at Knight Frank.
According to Knight Frank's estimates, capital growth in office buildings is expected to increase by 5.8 percent in 2020 and 6.4 percent in 2021.
"In the last five years, Sydney and Melbourne have dominated the professional market performance of the commercial and industrial sectors, significantly outperforming Brisbane, Adelaide and Perth in terms of rent growth, capital growth and growth. global returns.In 2020, see the beginning of a shift to a more uniform growth pattern, "Naughtin said.
However, the number of vacancies in Melbourne is expected to increase as a large wave of new office equipment reaches the CBD. Over the next two years, approximately 590,000 square meters of office supplies will be delivered to the city.
"The Melbourne office market conditions have been very tense in the last two years, with the market enjoying a long period of high net absorption, which has reduced the vacancy rate to a low 3. , 3%, "said Naughtin. ]
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