What’s In Store for 2015?
As we dust off our successes of 2014 and head into the new year, it is almost prudent to see what property experts predict is in store for 2015.
Following a year of record low interest rates and some good market growth across various property markets, experts are already predicting a bit of a mixed bag with some markets being maintained by a growing base of local and international investors, and others starting to feel the strain with a tougher outlook looming. Some of the key drivers and trends that have been predicted across the main property sectors in Australia are summarised below:
The continuation of low interest rates into 2015 is predicted to keep investor and first home buyer interest strong for at least the first half of the year. Further into the year, the outlook for interest rates is varied with the potential for poor overall economic growth indicating that interest rates should remain fairly steady for the remainder of the year, however this cannot be guaranteed. Sydney, Melbourne and Brisbane residential markets are expected to have the strongest residential growth with weaker economic conditions (especially linked to the slow down of mining industry) leading to a slowdown in development and investment activity across the rest of Australia. Well located sites with close proximity to public transport, work and retail amenities will be in high demand and will lead to strong growth in development site values. With the Australian dollar continuing to fall from 2014 highs, investor demand is expected to lift from offshore investors.
2014 saw a number of new investment groups (including sovereign wealth, insurance groups and developers) emerge from offshore and this is predicted to continue into 2015 with additional capital partnering being utilised by overseas groups tapping into local experience and development pipelines. With office to residential conversions being a major trend in the Sydney and Melbourne office markets, it is expected that straight commercial office development will continue to be limited by the availability of appropriate sites in 2015 with pressure on approval authorities to lift restrictions to allow further development within already geographically constrained areas. The dominance of local institutional groups is likely to also continue.
A lack of supply will continue to characterise the retail investment market in 2015. Competition for quality retail assets will be strong – especially for sites where there is potential to unlock additional value from the utilisation of air rights for mixed-use development. The continued strength in the residential market is expected to support the demand for these types of residential development opportunities; especially in population growth corridors, redevelopment precincts close to transport infrastructure and in areas that are undergoing a general gentrification.
Property returns from industrial assets have strengthened over the last two years and this is expected to continue this year. Increased industrial to residential infill development has seen the total industrial area available within most major capital cities in Australia reduce, leading a growing trend towards consolidation and the share of transport services. The appeal of large, quality assets located in major transport node locations has supported institutional investment in industrial markets which is expected to continue also.
Overall, it is expected that investors will continue to approach assets selectively and with caution – with sales numbers remaining well below the dizzying heights of pre-GFC markets. General economic conditions will ultimately dictate the strength of each of the above markets in 2015, however as we stand today, the general prediction is for property fundamentals to remain strong.