Growth of new businesses contributes to demand for commercial properties

During the pandemic period, we have seen a number of areas of the commercial real estate market thrive with increased demand to occupy inventory, and all new tenants have come from the significant increase in business start-ups during this period. At the start of the pandemic, we saw staff layoffs, reduced hours and rising unemployment levels, which was the catalyst for many to start their own businesses. As businesses grew, so did their space requirements, and we saw new tenants in the market take up industrial, retail and office space. Additionally, low interest rates have encouraged many first-time buyers to make their foray into commercial real estate as owner occupiers, investing in their SMSF and sheltering themselves from a possible rise in prices. housing costs given rising inflation.

In the recent ABS statistics we see that from 2019/20 to 2020/21 there was a 3.79% increase in net trade transactions (new inflows less outflows), this increased further in 2021/22 where a 6.98% increase was recorded to bring the total number of Australian businesses in operation to 2.57 million. Today, nationwide, 54.5% of all Australian businesses are classified as family businesses, with sole proprietors representing the largest growth segment over the past 12 months, up 12.76% , with the most active industries also being construction, professional, scientific and technical services. as transportation, mail and warehousing.

The exceptional increase in the number of business start-ups represents more than “garage start-ups”, with the largest increase coming from businesses with 20 to 199 employees, indicating their need for business premises. Demand levels for office stock in major cities have increased, particularly in the small sub-500m² size bracket for serviced space, as new entrants seek a professional home. Similarly, with industrial vacancy rates below 1% in most markets, assets have been actively sought after by new businesses looking for warehousing/storage facilities as well as suitable head office. to growth. The stock of industrial units in metropolitan areas continues to be hotly contested, as proximity to home is often critical for new emerging businesses.

In terms of locations, Victoria saw the biggest increase in new business starts last year, up 10.90%. Given the uncertainty of employment for many due to prolonged shutdowns during the pandemic, it’s no surprise that many people have started new businesses. ACT also benefited from a 7.68% increase in business start-ups, followed by the Northern Territory and South Australia, represented by growth of 5.68% and 5.63% respectively. In New South Wales and Queensland, new business growth averaged 5.50% for both markets. Regional locations figured prominently given the movement of population, particularly to coastal markets, with entrepreneurial residents taking advantage of changing population demographics.

It’s an exciting time for new businesses, with all industries showing increased numbers, which is good news for business owners. As these businesses grow and new ones emerge, it is expected that they will take up commercial accommodation, which will improve occupancy levels and increase rents. As interest rates rise there may be some movement away from asset buying and with a smaller pool of buyers the prospects for capital growth may diminish. Despite this. there are encouraging results for landlords on the horizon who have had a tough few years with forced closings causing tenants to leave or rental subsidies offered due to reduced hours.

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