Australia’s Economy Gathers Momentum as Fresh Storms Brew

Australia’s economy grew at a faster pace in the fourth quarter of 2024, shrugging off the threat of a recession just as the global outlook has dimmed amid a rapidly escalating trade war led by the U.S., and a sharp rise in geopolitical risks.

The economy grew 0.6% sequentially in the December quarter, and by 1.3% from a year earlier, the Australian Bureau of Statistics said Wednesday. The economy had clocked an annual growth rate of 0.8% in the prior quarter.

While the economic growth remains well below its historical average pace, it is pulling clear of a slump that saw growth virtually flat-line over the last year. Meanwhile, fresh storms are brewing as the U.S. moves to drive up tariffs on its key trading partners and stoke global uncertainty by halting aid for Ukraine in its war against Russia.

The Reserve Bank of Australia has said it is watching the situation closely, especially in terms of how it affects China, the country’s largest trading partner. However, the RBA’s trajectory for interest rates remains unclear as the central bank is uncertain about how crippled global supply chains and rapidly rising tariffs will affect inflation.

Coupled with the probability of weakened global growth, the central bank remains cautious.

RBA Deputy Gov. Andrew Hauser told a conference earlier Wednesday that even as the global backdrop weakens, the policy-making board of the RBA doesn’t yet see a need for a series of interest rate cuts, adding to the one announced in February.

“Interest rates will go where they need to go to maximize the chances of keeping inflation sustainably in the target band while helping to sustain full employment. Progress towards that target has been good — but it is too soon to declare victory,” Hauser told the AFR Business Summit.

Both public and private spending contributed to the modest recovery in growth in the fourth quarter, supported by a rise in exports of goods and services, the ABS said.

GDP per capita grew 0.1% this quarter following seven consecutive quarters of falls, it added.

Household spending rose 0.4% after a flat result in the September quarter with spending on essentials such as rent and health among the highest contributors to spending growth, the data showed.

Household discretionary spending rose as people made the most of retail sales events and increased spending on hospitality, the ABS said.

Growth in government spending moderated to 0.7% per cent in the quarter following larger rises in previous quarters, the data showed.

Private investment rose 0.3% in the quarter with a focus of new engineering, construction of electricity generation and distribution projects, and mining.

Public investment rose 1.8% amid a boom in state and territory government spending on public transport, roads, water and renewable electricity infrastructure, the ABS said.

Write to James Glynn at james.glynn@wsj.com

Falling interest rates are sparking a rebound in interest in commercial property. However, for many first-time investors, commercial property can feel very intimidating. With commercial property, there are typically numerous different numbers, complex leases, and unfamiliar terminology.

But once you understand what to look for, the pathway into commercial becomes much clearer and far more achievable than most people realise. So, what does a smart entry point into commercial property actually look like?

If there’s one standout option, it’s typically an industrial property with value-add potential.

Why industrial is the right place to start

Among all the commercial sectors, industrial is currently the most stable and accessible. Demand is being driven by the trades, small manufacturers, logistics operators and e-commerce businesses, many of which are growing rapidly and need practical space to operate from.

Unlike retail and office properties, industrial assets are typically simpler to understand. They’re often lower maintenance, easier to lease and more resilient to changes in the economy. This makes them well-suited to first-time investors who want to enter the market with confidence.

The importance of value-add potential

When looking at entry-level opportunities, many investors make the mistake of prioritising presentation. But it’s generally not the flashiest property that delivers the best returns. It’s the one where you can create the most upside.

That might mean buying a property where the current rent is well below market value. When the lease ends, you have the opportunity to negotiate a new lease at a higher rate, instantly increasing the property’s value.

In other cases, it may be a warehouse with a short-term lease in a high-demand area, providing you the opportunity to renegotiate the terms and secure a better return. Even basic improvements like repainting, improving access, or updating signage can make a big difference to tenant demand.

Don’t chase yield for the sake of it

A common trap for first-time commercial buyers is chasing the highest yield on offer. While yield is an important consideration, it shouldn’t be the only one. A high yield can sometimes signal a risky investment, one with a poor location, limited tenant demand, or low capital growth prospects.

Instead, smart investors focus on balance. A net yield of six to seven per cent in a strong, established area with reliable tenants and good fundamentals is often a far better outcome than a nine per cent yield in a declining market.

Yield is only part of the story. A good commercial investment is one where the income is sustainable, the asset has growth potential, and the risk is well-managed.

The risks of starting with retail or office

Retail and office properties can be suitable for experienced investors, but they’re often more complex and carry higher risk, especially for those just starting out. Retail in particular has faced significant changes in recent years, with e-commerce altering the way consumers shop.

Unless the property is in a high-traffic, local strip with essential services like medical, food or personal care, vacancy risk can be high. Office space is still adapting to the post-COVID shift towards remote work, and in many cases, demand has softened. If you’re entering the commercial market for the first time, it’s better to stick to simple, functional industrial assets in proven locations.

Where to look, and why

For first-time investors, some of the best opportunities can be found in outer-metro industrial precincts or larger regional centres.

Suburbs in places like Geelong, Logan, Toowoomba or Altona North offer a compelling combination of affordability, strong tenant demand and relatively low vacancy risk.

These areas often have diverse local economies that don’t rely on a single industry and offer entry points between $600,000 and $1 million, a sweet spot where competition from institutional investors is limited and owner-occupiers are still active.

What a good entry deal looks like

Imagine purchasing an industrial shed for $750,000 with a tenant in place and a current net yield of 6.5 per cent. The lease has about 18 months left, and you know the current rent is around $10,000 below market.

Once the lease expires, you can renegotiate or re-lease at the correct rate, increasing the income and, by extension, the value of the asset.

That’s a textbook example of a good commercial entry point. The property is tenanted, it generates income from day one, and it has a clear path to growing your equity within 12 to 24 months.

Abdullah Nouh is the founder of Mecca Property Group, a boutique buyer’s agency in Melbourne helping Australians build wealth through strategic property investment.