Why business expansion offers potential opportunity for investors

Over the past three years, there’s been a significant increase in the number of new businesses, which may translate into increased demand for commercial property.

Between the 2019-20 and 2022-23 financial years, the number of actively trading businesses in Australia rose 11.9%, from 2,314,448 to 2,589,873, according to the Australian Bureau of Statistics.

Focusing just on the most recent year, the industries that experienced the largest increase in business numbers were:

• Healthcare & social assistance = 6.1%.
• Financial & insurance services = 2.7%.
• Transport, postal & warehousing = 2.4%.

Ray White Commercial Head of Research Vanessa Rader said the strong growth in the healthcare & social assistance industry matched “the strong demand for healthcare assets, be it hospitals, medical centres and suites, and integrated facilities”.

Ms Rader also said the growth in transport, postal & warehousing was being driven by a rise in fuelling activity. “While low vacancies remain across most industrial markets, the requirement for distribution and storage facilities is not expected to wane, however a reduction in manufacturing businesses may assist in opening up some industrial assets,” she said.

Meanwhile, despite the poor performance of many office markets across the country, “new business starts in the professional sectors, including finance, insurance and real estate, may see the office market turn a corner”.

What is the outlook for different asset classes?

Data from Morgan Stanley Capital International (MSCI) showed that demand remained for investors in the healthcare and industrial sectors looking to take advantage of the long-term capital gains associated with these asset classes, according to Ms Rader.

“Strong and stable income returns are also a feature of these asset classes, while the mismatch between demand and supply to occupy has ensured income certainty. Over the

last 10 years we have seen annual total returns for industrial and healthcare at 14.2% and 13.8% respectively, ahead of both retail and office assets,” she said.

For the office sector, Ms Rader said the high vacancy environment would take some time to play through, keeping returns subdued and investor demand levels dampened until substantial price corrections were achieved. While there had been an encouraging number of new business starts among professional services industries, “the shift in workplace behaviours around working from home the greater stumbling block for this asset class,” she said.

“Retail assets are also grappling with the changing consumer sentiment towards bricks-and-mortar retail,” according to Ms Rader, and “while income returns remain stable, this uncertainty has seen limited positivity in capital returns over the last 10 years”.

Commercial real estate can provide diversity to an investment portfolio. Another benefit of commercial property is that it features a range of asset classes, catering to investors’ different goals and risk profiles. Get in touch if you’re thinking about investing in commercial property. I’ll explain how to finance the deal and compare different loan options for you.