Consider investing in select commercial real estate assets over the long term

At the time of any crisis there is an almost inevitable reaction that overshoots the need for caution. Without doubt, times are now tough – and investment decisions difficult – but importantly such difficulty is not unprecedented given historic cyclicality of property markets. 

Commercial real estate markets in Australia are still highly influenced by domestic factors. The strength of fundamentals has been undermined by global events, but they remain more favourable than in almost all other developed countries with characteristics of low inflation, declining interest rates, robust population growth and modest unemployment. 

Most importantly to property markets, commercial accommodation is in shortage given the limited new supply that has been delivered since the late 2000s due to the initial round of impacts following the 2008 GFC. 

Carefully selected retail, commercial and industrial properties provide regular compounding rental growth and capital return to the combined effect of internal rates of return within the range of 8% to 12% per annum. This overall return does not anticipate strong capital growth in the short term given the constraints imposed by the prevailing economic circumstances, which highlights the need for a longer-term property investment strategy. 

Scott Keck is executive chairman at Charter Keck Cramer

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