Search for new income in Aussie property

Yasmine Raso

Senior Journalist, Financial Newswire

28 November 2022

The Australian property market is forecasted to see new entrants and emerging sectors in 2023, as investors search for new sources of income growth and ways to mitigate downside risks and headwinds.

According to global property consultancy, Knight Frank’s 2023 Outlook Report ‘Back to the Future’, investors in Australia’s property market will look to new asset strategies and options to protect portfolios.

“In 2023, the search for income growth will lead to evolution of new product types, such as multi-level logistics facilities in infill locations and the next generation of new office towers, providing ultimate flexibility and heightened tenant experience and engagement,” James Patterson, CEO of Knight Frank Australia, said.

“It will also drive demand for emerging sectors such as life sciences and the wider healthcare space, where demographic and behavioural trends point to the need for more investable stock. For the life sciences sector to flourish in Australia, we require better quality infrastructure that will enable the sector to leverage the strong underlying research foundation we have in our universities.

“We anticipate that the current macro headwinds are likely to generate further interest in alternative sectors linked to a strong underlying growth story, and we expect to see a sustained depth of both venture and institutional capital targeting the life sciences sector throughout 2023.

“It will also cast a spotlight on lease structures, and the ability to ratchet up rents relatively quickly in line with higher inflation. This is a key thematic underpinning the rise of build-to-rent which is keenly sought by investors seeking to diversify.”

The report also highlighted how the industrial sector has struggled through “unprecedented” conditions with dramatically low levels of supply, with focus moving from “rapid upscaling” to “strategic optimisation” of the distribution chain including cost, location, design, and operational and environmental conditions.

“The industrial sector remains the one to watch, with the market expecting a record year for development completions in 2023, led by Brisbane and Melbourne,” Ben Burston, Chief Economist at Knight Frank Australia, said.

“While this will be welcomed by tenants, it is still likely to be insufficient to restore a more normal balance between supply and demand, particularly in Sydney, with an equilibrium unlikely to be restored until a larger quantum of developable land comes online in 2024-25.

“We are likely to see major players continue to vacate older buildings and focus on more efficient facilities which are designed for automated warehouse systems and can maintain higher sustainability ratings.

“Efficiency of the warehouse, stock control and transport costs will all come under greater focus as cost-cutting returns to the fore to sustain margins in a tougher economic environment. At the same time, the need to document carbon emissions as well as reduce transport cost and time parameters will see location continue to be a driving force in efficiency and environmental considerations.”