How commercial investors are coping with rising inflation

by | Sep 16, 2022

According to one of Australia’s leading commercial property analysts, rising inflation can be either a threat for commercial investors or an opportunity.

Commercial property has often been perceived as a good hedge against inflation, but the current rising inflation rate would be testing some landlords, particularly if they’re invested in asset classes with high vacancy rates.

As a hedge against this high inflationary environment, many commercial property owners are repurposed their assets to allow a broader range of uses, such as childcare, medical and co-working, all of which are growth sectors.

Four high-level observations 

Ray White Commercial head of research, Vanessa Rader shares her thoughts on which sectors she beleives will fair well or nor so well as interest rates continue to rise.

  1. Industrial properties are “likely to weather the storm”. That’s because they’ve experienced a growth in demand, notably from the freight, transport and warehousing sectors. So they have low vacancy rates and “have enjoyed strong levels of rental appreciation”.
  2. Now that a significant share of people are working from home, businesses are reducing their office footprint. “As a result, sublease space continues to climb and incentives will remain a key strategy to fill space”. Short-term rental increases are unlikely, but “there are opportunities for landlords to be more flexible or innovative in their lease terms and conditions to maximise future escalations”.
  3. Tourism assets have had a difficult two years, due to border closures, lockdowns and reduced occupancy limits. Thankfully, tourism tenants are now enjoying an increase in domestic and international visitor numbers. However, they’re also having to deal with labour shortages and rising prices, which are affecting their profitability.
  4. The retail sector has been experiencing an increase in turnover. However, retail vacancies are high, so “there is little sign of rental growth on the horizon”.

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