In the lead up to the Global Financial Crisis, we did not invest in Listed Property Trusts or Unlisted Property Trusts.

With the significant realignment in these property markets we now are seeing value of investing in Commercial Property markets.

This article focuses on the Office market within the Commercial Property sector.

2010 saw the following occur in the Office market:

  • CBD Office vacancy rates peaked at 8.3% and are now trending down
  • Capital values increased by around 5%
  • There was tangible evidence of increased demand for space
  • Prime Gross Effective Rents increased by 1.4%

Below is a chart supplied to us by Charter Hall Property group which outlines forecasts for CBD Office property in each of the major markets in the coming years.  These forecasts are based on demand assumptions for space, compared to known additional supply of property that is in the pipeline.

This chart is showing that it is anticipated that over and above the income received by investors, capital values are forecast to rise on average by around 20% from 2011 – 2014 in the CDB Office sector.

When considering a commercial property investment we normally would recommend investors seek the following in a property investment trust vehicle:

  • Vehicle should have High Quality Tenants of well known companies with strong brand names in a strong financial position.  The property vehicle should not overly focus on one tenant.
  • Consider the Average Lease Expiry (referred to as ALE) – this is the average term that tenants have to run before their lease is up for renegotiation.  A longer ALE should result in a higher income certainty for the investment vehicle
  • Level of Gearing – we would normally start to become uncomfortable with a property investment with more than 50% gearing
  • Investment vehicle should contain a number of properties in different locations, rather than relying on either one area, or worse still one property.

IMPORTANT INFORMATION:  Any advice contained in this article is general advice only and does not take into consideration the reader’s personal circumstances.  Any reference to the reader’s actual circumstances is coincidental.  To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.  When considering a financial product please consider the Product Disclosure Statement

Published in The Housing Market