Why commercial property is bucking the trend of falling prices

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OPINION: Investors are still paying up big for unlisted commercial property, but prices could come under pressure from rising inflation and interest rates

It’s one of the most perplexing problems for investors: prices for commercial properties in suburban and regional areas have remained extremely buoyant, even though rising interest rates have sent prices for other assets skidding.For some reason, investors seem content to accept yields of less than 4 per cent on unlisted commercial property, at a time when they could pocket a 3.5 per cent yield by owning risk-free Australian 10-year bonds.

But a more likely explanation is that some investors have yet to factor in the cost of rising repayments. What’s more, it will take some time for owners of shopping centres to feel the impact of rising inflation. And that means that even those shopping centres that have high-quality, long-term anchor tenants could face a rise in their vacancy rates as some of the more specialist, niche stores suffer from dwindling demand, and are forced to close.

 

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