The 2023/24 financial year saw a return to a balanced market where traditional commercial property fundamentals were front and centre. Despite an increasing interest rate environment, the Tasmanian market has remained resilient, with transaction volumes steady for both sales and leasing across all sectors.
Whilst there has been a slight softening in yields for some asset classes, we have seen a majority of values hold as the yield softening has been offset by rising rents which can be partly attributed to a shortage of stock and substantial CPI increases, coupled with low vacancies and steady tenant demand.
Owning and occupying
Owner-occupiers have demonstrated relative strength in the current market. Businesses looking to secure their premises have been more active in purchasing properties rather than leasing. This trend is driven by several factors including long-term stability, favourable financing and equity building.
Reduced turbulence in tourism
There has been significant activity in the tourism sector in the past 12 months. After a period of inactivity in the years post COVID, several hotels have recently transacted both on and off market with good demand.
According to the THA Hotel Occupancy Report, for the year ending 31 December 2023, Tasmania recorded a healthy 73% occupancy rate whilst the median room rate was also up. We also expect additional growth in the sector from the impending arrival of the two new Spirit of Tasmania ferries providing increased passenger capacity and access to Tasmania.
Occupied offices
Office markets have remained tight with limited vacancies, symbolised by Hobart’s vacancy rate a mere 2.8% (PCA Feb 2024), by far the tightest capital city market across Australia, compared to the national average of 14.8%. Hobart has no new supply under construction.
Whilst the hybrid way of working appears to be here to stay, we are seeing greater occupancy of offices; as businesses look to improve productivity, efficiencies and face to face collaboration. The recent sale of the landmark “Lands Building” in Hobart’s CBD is symbolic of investor confidence in Tasmania’s office sector.
Tenant demand in Greater Launceston’s office sector has remained relatively stable, as regional areas like Launceston have also been less impacted by the “work from home” trend.
Growing appetite for industrial investment
The sector with the most activity in the past 12 months has been the industrial sector with good demand from investors and owner occupiers alike.
Lower maintenance, simpler assets and generally lower value/entry points remains very attractive to investors, and the growth in e-commerce is pushing rents and keeping the vacancy rate low.
This trend was especially evident in Northern Tasmania, providing significant support to the commercial market as a whole.
Resilience in retail
Despite shifts in consumer behaviour, driven by cost-of-living concerns and reduced discretionary spending, investor appetite remains strong for retail assets throughout the price point range; this is evident with several assets recently transacting in Hobart’s CBD and city fringe including the Big W anchored Glenorchy Plaza selling for $19.75m reflecting a yield of 7.5%, whilst in the north we saw Woolworths anchored “Riverside Plaza” selling after a strong sales campaign.
Conclusion
In summary, Tasmania’s commercial market has proven resilient through the interest rate increases in 2023, with a focus on strategic investments in sectors with strong growth potential and properties with multiple uses becoming more sought-after.
With several transformative infrastructure projects continuing and more expected to start in 2024/25, coupled with the opportunity to purchase properties well below replacement costs and interest rates at or near the peak of the interest rate cycle, we have seen an increased interest from investors. As we enter FY25, we do so with great confidence.
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Written by:
Richard Steedman
Commercial Sales and Leasing – Southern Tasmania
Cale Ayres
Commercial Sales and Leasing – Northern Tasmania