Uncertainty and Opportunity as Commercial Market Rebalances

The Sunshine Coast commercial property market is undergoing a reality check as rising interest rates and inflation put the brakes on the upswing in selling prices seen in recent years.

Continued high demand had previously seen properties snapped up as soon as they hit the market and vendors achieving record rates across all asset classes.

But while there’s still plenty of activity in the market, momentum has slowed as interest rates which have moved over 300 points since the bottom of the market, place pressure on yields.

“The runaway market was always going to need correction,” Ray White Principal Paul Butler says. “However, it’s impossible to know just how much correction there will be. I expect we’ll be on the back of a flattening market for some time while things balance out.”

“This means rising uncertainty for some, especially small business owners but it’s also an opportune time for investors who exited while prices were at the zenith to re-enter the market.”

RETURNS COME INTO FOCUS

A sense of realism and caution have entered negotiations with purchasers looking for more bang for their buck and a willingness to wait longer for the right opportunity.

“There’s still loads of demand around but buyers are negotiating more fiercely,” says Ray White commercial property consultant Josh Harris.

“With supply outstripping demand, commercial properties are sitting on the market for longer. People are tightening up what they are willing to spend due to reduced borrowing capacity and wanting a certain return on investment,” he said.

In the meantime, business owners are becoming more price sensitive and planning for what could be tougher times, according to commercial property consultant Chantel Dielwart.

“Business owners know that as mortgage repayments increase, consumer discretionary spending drops, so they’re reorganising their finances accordingly,” Chantel said.

“We’re seeing businesses in the retail and office sectors downsizing pricewise at the end of a lease. They might seek to secure a similar size space but in a different location such as an arcade rather than a street fronting position.”

MORE LOCALISED INTEREST

Interstate interest has slowed over the past six months as investors and business owners seek to consolidate in their current locations rather than looking further afield.

“While previously, it was all about lifestyle, people from NSW and Victoria are now seeking a solid investment before considering moving their businesses and families to the Sunshine Coast. For those buyers, there is still plenty of value here,” Josh says.

Long-term interstate migration projections indicate this slowing is likely temporary, with Queensland population growth forecast to recover to 1.7% in the next financial year.

The Sunshine Coast continues to offer strong appeal for buyers across Queensland, with Chantel noting an uptick in interest from local and Queensland-based investors seeking to bolster their portfolios.

RENTAL RATES ARE STILL RISING

With a rapidly growing population and the health sector the region’s major employer, it’s no surprise that allied health and medical assets continue to be in hot demand, particularly when co-located with other allied health professionals or near the region’s major hospitals.

Despite the more cautious market, rental rates, especially for quality office space, continue to rise, something David Brinkley expects to continue.

“Traditionally, commercial rental rates were floating between $300 to $400 sqm net but are now pushing over $400 sqm net, reflecting increasing construction costs, new higher quality buildings coming online and rising interest rates. I don’t think it will be long before we see rates pushing up towards $500 sqm net on the higher quality commercial spaces,” David said.

MAROOCHYDORE IS IN FAVOUR AS BUSINESSES CENTRALISE

While the past 18 months have seen strong growth in smaller villages like Coolum, Birtinya and Peregian Beach, there’s now a resurgence of interest in Maroochydore commercial property.

The emerging trend appears to align with the new hybrid work model where staff can work a couple of days a week from home and the remainder in the office.

Many businesses with staff scattered across the coast from Noosa to Caloundra and the hinterland see Maroochydore as a central location that’s fair for everyone. If they can snap up a reasonably priced A-Grade office space with car parking, there’s a stronger incentive for people to want to come into the office.

INVESTORS SEEKING GAPS IN THE MARKET

While plenty of people are watching and waiting to see what the next few months hold, commercial property agent Tracey Ryan says there are still plenty of investors on the hunt for good property with a view to a long hold. Many value-driven local investors who sold at the peak are now seeking to re-enter the market.

“I encourage owners to have a mix of businesses in their property portfolio and look for good operators or gaps in the market,” says Tracey.

“There are a million reasons to develop a good relationship with your agent. We operate day to day in a microeconomic environment while still keeping abreast of the big picture. This gives us real-time insight into market changes and trends that the media and larger financial organisations see retrospectively.”

“Up-to-date information is vital if market rental reviews are coming up or to determine whether current rental rates are sustainable on investment properties you may be considering. Always feel free to ask – our business is about long term relationships and working with our clients to maximise asset return and value,” Tracey explains.

For a chat about the commercial market or for any enquiries, contact our team on:

Noosa and Maroochydore offices: +617 5474 7600
Caloundra office: +617 5491 4600

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