Financial insights: The commercial property environment

We have recently partnered with Stamford Capital, Australia’s leading commercial brokerage, to further provide our clients with the full range of services required for a successful commercial property transaction. We are pleased to share some of their financial insights being felt in today’s commercial property environment.

‘Volatile’ is the fairest description of liquidity and appetite for the finance market for the calendar year to date. However, as rates have stabilised and a ‘new normal’ is established for the capital markets, Stamford Capital believe a sufficient level of capital certainty has arrived for borrowers.

Cash rate movements

The commercial property market has now caught up to the continuous cash rate increases over the past 14 months and the full impact of the uplift on the market is now being seen. Highly geared Commercial Real Estate (CRE) loans have been left exposed and some borrowers have been at risk of breaching lenders’ Interest Coverage Ratio (ICR) requirements. ICR has become the new hurdle in accessing debt.

Despite uncertainty remaining in market, the more recent five cash rate holds have returned some borrower confidence as borrowing costs have stabilised. Lenders’ benchmark rates have come down 0.50% from their peak, assisting with ICR compliance. Even as we await the next RBA announcement and the markets tip a raise on Cup Day, experts tend to agree that we are close to the peak cash rate, assisting to lift borrower and lender confidence.

Lender appetite

In today’s market, non-banks are stepping up where banks have been unable to, offering higher leverage and less conditionality. While banks are still behaving cautiously, they are open to good quality assets and buyers. Stamford Capital have witnessed this firsthand. Percentage of transactions with non-bank lenders grew from just under 50% in FY20 to just under 80% last financial year.

Newcastle is viewed positively in the lending market. It is considered to be one of the stronger regional centres in Australia, supported by its population (expected growth of 1.5% p.a.), ties to industry and proximity to Sydney. There are several large-scale projects ($100m plus) undertaken by Sydney based developers that have been successfully delivered, helping to lift the profile of the region in the eyes of lenders, developers, and investors.

Asset classes

Industrial assets continue to be the ‘flavour of the decade’ and along with residential, have the broadest market appeal with lenders. Office is the only asset class struggling for traction with lenders as the work from home trend continues, however this trend is less prevalent in the Newcastle market when compared to the larger capital cities.
Newcastle’s high level of investment in infrastructure and development over the past seven years and strong population growth has only bolstered its reputation in market and attracted new investment in the region.

Stamford’s sentiment on the market is that despite ongoing challenges, lenders are still open for business, willing to look at most asset classes and transactions that make sense. With the rise of non-bank and private institutional lending, investors and developers are encouraged to speak to a trusted adviser to get a holistic view of the market.

Our experienced sales and leasing team are always happy to discuss any questions you have about the commercial and industrial market, and the opportunities available to you. With Stamford Capital’s experienced team now partnering with Commercial Collective, we can put you in contact with an experienced brokerage that can assist you further in your research into the current market opportunities. Contact us today for further information.