The commercial property market is experiencing an intriguing shift, particularly in the sub-$20 million sector, which continues to demonstrate resilience in the face of challenging market conditions. Despite the increased cost of financing, this segment of the market is performing remarkably well, with transaction volumes surpassing both historical averages and pre-pandemic levels. This stands in stark contrast to the broader commercial market, which has seen declines of up to 70 per cent year-on-year in some areas.
While the sub-$20 million market has cooled from the peak activity seen in 2021/22, when volumes approached $100 billion, the current trend still indicates robust demand for smaller commercial assets. The annual decrease of approximately 15 per cent from those record highs underscores the enduring appeal of this market segment to both investors and owner-occupiers.
Investors remain active players in this space, drawn to the prospect of higher yields, opportunities presented by distressed sales, and the potential for land banking with an eye toward future development. However, a notable trend has emerged in the form of increased activity from owner-occupiers, who have become a significant and competitive buying group in this market.
These owner-occupiers are motivated by a desire to secure their business premises and shield themselves from the uncertainties associated with leasing commercial space. By purchasing properties within their business structure or through self-managed superannuation funds (SMSFs), they aim to bring long-term stability and certainty to their operations. This strategy not only protects them from potential rental fluctuations but also allows them to build equity in a real estate asset.
The current financial year has seen $70.5 billion change hands for traditional commercial assets in the sub-$20 million price range. Industrial properties have dominated this activity, accounting for a substantial 55.3 per cent of all sales. This dominance of the industrial sector is not a new phenomenon, as its share of investment has been steadily growing year-on-year over the past decade, reflecting changing attitudes towards this asset type as well as required business needs and broader market dynamics.
Geographically, the distribution of investment shows some clear patterns. NSW continues to lead in terms of investment volume, followed closely by Victoria. However, the Queensland market is showing rapid growth, with Western Australia a small but growing location also, indicating an expansion of commercial property interest beyond the traditional powerhouse states
The uptick in owner-occupier activity is further evidenced by the growth in business lending for property purchases. While this data shows some month-to-month volatility, the overall trend has maintained an upward trajectory. During the 2022/23 financial year, a total of $69.6 billion was lent to businesses for property purchases. This represents a 4.3 per cent increase from the previous year, although it’s down 14.6 per cent from the exceptionally busy 2021/22 period when volumes reached record highs.
To put this into perspective, prior to the recent surge, the 10-year average for annual business lending for property purchases stood at $54.1 billion. The current figures significantly exceed this long-term average, highlighting the growing trend of businesses opting to own their commercial properties. This shift towards owner-occupation in the commercial property market reflects a broader strategic move by businesses to secure their operational spaces and invest in their long-term stability. As this trend continues to unfold, it may have lasting implications for the commercial property market and the way businesses approach their real estate needs.
Vanessa Rader | Ray White Head of Research
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