Positive caution in vacancies factors
Raine & Horne Newcastle
I sat back on the weekend and gazed at the view over Sydney back towards the airport from my hotel room window, (45) tower cranes! I was aware of the Q4 2017 Ryder Lovett Bucknall Crane Index Report saying there are (685) cranes in Sydney, Melbourne and Brisbane while in comparison there are (90) in Los Angeles, San Francisco and New York. It’s not until you see them you come to realise the enormity of the money pouring into building and construction.
Real estate agents love this stuff, builders build and we the agents, lease and sell. In Newcastle we are also riding the boom of progress, the latest Raine & Horne Industrial Average has fallen to the lowest vacancy rate in (5) years (4.4%). The Property Council of Australia’s vacancy for Newcastle office space has the rate falling from (10.3% to 9.0%).
All wonderful and positive news but what lies beneath these numbers?
This market has been powered in the main by the return of coal companies needing to upgrade and maintain the equipment used within the mining sector. Something they haven’t done on mass since March (2013). Raine & Horne Commercial is also seeing the effects of the building boom with those supplying to this sector also expanding their space requirements adding to the overall pressure. Not only is the existing stock of buildings being absorbed, but land is too with Hunter Land experiencing an extremely busy start to the year.
If this continues the effects could be;
1. The shortage of buildings for lease and for sale. Simple supply and demand resulting in increasing rents and sale prices.
2. With this shortage will come an era of stability for landlords, as tenants remain in their existing premises preferring to take up options or negotiate new leases.
This should continue until the supply of industrial land is increased which is still (18) months to (2) years away.
Commercial & Retail
Whilst the Property Council figures are positive, the City is changing. I’m not sure anyone understands what it might be in the future but for now there are some concerning disruptions looming.
1. The relocation of Newcastle City Council and NSW Government departments to Newcastle West. This will not only create vacancies in the space they leave behind but it will take people with well-paying jobs out of the city and congregate them in one general vicinity which will seriously impact the retailers whose existence relies on these workers.
2. The impact of the Light Rail and the disruption caused by the construction is impacting on the businesses of the city. First and foremost are the retailers, many of whom are on the move out of the city with some even closing down while others are left contemplating their future. Commercial tenants are also impacted with businesses rethinking their need to be in the city.
The property owners and tenants are in for a world of pain before the prospects of the CBD improve. Whilst government officials maintain that our traders aren’t hurting like those in Sydney - hurt is hurt and the disastrous effects on the businesses in this city is real and will cause bankruptcies, marriage break downs, ill health from stress - at least the Sydney traders have the underground rail system bringing the people into the city and take them away each day.
Therefore, the outlook for 2018 is mixed. Industrial is positive if you own property. For tenants, they can expect to start to see rental increases. Commercial and retail in the city is, well, it’s not pretty, while in the suburbs the money from mining and building industries is flowing creating a positive vibe. This positive vibe will also see diminishing vacancies in commercial and retail properties causing a similar effect to that occurring in the industrial market – stable tenancies and increasing rents.