10 Sep 2021
Words Trudy Crooks Informer Issue 100
The Road Ahead
After a tumultuous past year and a half, we’re often asked for our take on what the future holds within the industry.
One thing that is certain is that the next 12 months will bring more uncertainty, however, there are solid economic fundamentals at play which point to a positive outlook.
So, we’re going to get our crystal ball out and make a few calls on what’s likely to happen out there – based on facts and what we know already.
Here are our five market predictions:
Regional markets will continue their sharp upward trajectory as international borders remain closed and Australians holiday at home. This is particularly applicable to destinations within four hours’ drive of a capital city with drive tourism changing the way Australians travel.
The migration of people away from capital cities to the regions will continue and, as such, “big city” investors will continue their hunt for regional assets.
Demand for caravan parks and freehold motels has been high and this will only increase with demand outstripping supply. In fact, the serious enquiry level for these particular freehold assets is so high that we’ve been putting the “leasehold-passive investor model” model back together.
That is, instead of selling a park or motel leasehold and freehold separately, we’re selling them together in one line because that’s what investors want in this market.
Capitalisation rates will tighten because of high demand from investors, especially in regional areas, and this means high buyer demand in the regions is driving cap rates up and there isn’t enough stock to cover that demand.
The cap rate indicates the rate of return that is expected to be generated on an investment in an accommodation asset, which also means that prices are rising.
Interest rates are playing a major part in this increased demand for regional and freehold assets. This “cheap money” is set to continue for a while with the Reserve Bank of Australia saying interest rates will remain low until 2024.
Some analysts are predicting the RBA will backtrack on this timeline, but our assessment is that for the next 12 months, rates will remain low and that will continue to drive demand.
There are more development applications being lodged around Australia and this is perhaps because developers are aware that the cycle is at around “six to eight o’clock”, depending on the location, which means that the next upswing is on the way.
The Australian Construction Industry Forum reports the country’s building and construction market is bouncing back.
Growth is exceeding expectations based on the deployment of a comprehensive range of policy measures designed provide a strong stimulus and a rapid recovery.
The new forecasts project growth of 2.7 percent, bringing the level of building and construction work across all sectors up to $243 billion in 2021. END