There’s a knowledge vacuum around commercial property. Let me shine a light.
Commercial property has a mystique to it that can put people off. Everyone understands using houses to live in. We all do it. Residential property as a concept is pretty easy to get your head around.
Commercial, not so much. It is a different game – you can’t just transfer directly across from residential – but it’s not rocket medicine either. Once you know the ropes, it’s all pretty straight-forward.
Another part of commercial’s mystique is that we just don’thear about it. Commercial property never made the nightly news. No dooms-dayeconomist ever predicted an 80% collapse in commercial. 60 Minutes never made it a feature.
And into that vacuum, it’s easy for a few misconceptions to take hold. So I thought I would bust three of the most common myths around commercial, and help people get a better handle on the space.
Myth 1: Commercial is riskier than residential
This is a bit of an
The way I think about it,
And a few people have said to me, “well, with the property market softening, you wouldn’t want exposure to commercial.”
But that’s the thing, the residential and commercial outlooks are pretty different right now (although the commercial outlook can vary a lot more suburb to suburb).
The proof of that for me is that while residential auction clearances have plunged into the 40%’s, clearance rates for commercial property are reportedly at 86%. That’s thumping.
And the truth is that the softer outlook for residential property is pretty much the only thing in the economy that is looking soft right now.
So the outlook for commercial (the right product in the right area), is benefiting from a strong economy, and actually looks great right now.
Myth 2: Over-building has created an over-supply
This is something that we were hearing about for years – how developers were just building way too much in the CBDs, and we’d have commercial gluts for years.
But it just didn’t happen. Much of the stock in the pipeline never made it to market, and the stuff that did got absorbed pretty quickly.
In fact, Office Vacancy Rates in Melbourne CBD
Vacancy rates can be more variable for commercial, and youneed to know how to pick the right areas. But the idea that there is some general over-supply of commercial property is just a myth.
Myth 3: Commercial has been disrupted
An idea I’ve heard recently is that structural changes in the economy are working against commercial real estate. The rise of online shopping is hurting retail, while the rise of AirBnB is hurting hotels.
Like most myths, there is some truth in all this. Your large retail complexes (like Westfield’s) have been challenged, and many are pivoting more towards being entertainment precincts – with cafes, bars and so on.
However, with every challenge comes opportunity. And while the store-front outlets are being challenged, everything else along the supply chain is doing well. The warehouses, regional distribution centres etc. We’re still shopping, even if we’re not visiting shops quite as much.
Same story with hotels. They’re being challenged on the domestic tourism front by AirBnB, but international tourism is booming righ tnow, and only going from strength to strength. And those package holidays ofChinese tourists aren’t going spread themselves out across Granny flats allover Sydney. They’re going to stay in your traditional hotels.
So yes, commercial real estate, like every sector of the economy, is being affected by the advent of new technology. But you can’t just write off the whole sector. Some doors close, many doors open. Many opportunities are waiting.
You need a guide
So don’t believe the hype. The commercial cycle is solid, there’s no general over-supply, and technology is opening as many
But, since it’s not on the nightly news, you don’t want to go into it blind. You need a guide who can help you navigate the space, and help you find something that matches your needs.
(Am I sounding like a broken record yet, or what?)