Why investors are switching from residential property to the commercial market

Property investors are losing interest in the booming Western Australia residential market after significant price rises, and some are switching their focus to commercial property to better suit their budgets. These are two of the findings of the Australian Property Investor (API) magazine’s Q2 2024 Property Sentiment Report, which is based on a survey of investors, landlords, and property buyers.

The report revealed other interesting trends, including positive general market sentiment falling below 50 percent of survey respondents for the first time in 12 months; expectations of continuing price rises falling from 84 percent to 70 percent; and the intention to buy dropping significantly because an interest rate cut in the short term is no longer expected. Indeed, earlier this month, Reserve Bank Governor Michele Bullock indicated a rate cut within the next six months is unlikely.

The API report highlighted waning interest in Western Australia, which had the strongest growth in home values in FY24. The median home value rose by 23.6% to $757,399 in Perth and by 16.6% to $514,642 in regional areas, according to CoreLogic data. In Q1, 24 percent of investors rated the mining state as their preferred location for investment. This fell to 16 percent in Q2, which API says is one of the largest changes in sentiment it has ever seen across its quarterly surveys.

Interest in NSW rose by 6 percent to 26 percent in the second quarter. Growth in home values was comparatively moderate in FY24 at 6.3 percent in Sydney and 4.1 percent in the regions. Queensland remains the favourite investment destination among 33 percent of investors, up from 32 percent in Q1. Home values rose by 15.8 percent in Brisbane and 12.2 percent in regional Queensland in FY24.

While residential property remains the most popular type of bricks-and-mortar investment that buyers are considering purchasing over the next year, the survey revealed increased enthusiasm for commercial property. In the second quarter survey, 13 percent of respondents said they wanted to buy a commercial property over the next year, up from 7 percent in the first quarter.

“This near-25 percent decline in just three months is an extension of a downturn that has been taking place since the Q4 2023 survey, when houses were at 45 percent,” according to the API report. “As affordability concerns mount, detached homes are now out of reach for many. The increasingly publicised strong performance of commercial property, particularly industrial assets, along with easier access to this investment vehicle through a proliferation of fund and syndicate offerings, has put commercial firmly on the radar of investors.”

Among those still targeting residential property, interest in standalone houses dropped from 39 percent in the first quarter to 30 percent in the second quarter. Interest in apartments increased slightly from 23 percent to 24 percent, and interest in townhouses and villas was steady at 18 percent.Investors also signalled a renewed interest in building, with 10 percent of respondents now intending to buy vacant land, up from 5 percent last quarter.

This may be a reflection of construction costs easing after years of unprecedented growth. The cost of building a typical home rose by just 0.5 percent over the past 12 months, according to the latest CoreLogic Cordell Construction Cost Index report. This was the slowest growth in 22 years. “The growth in costs has finally returned within normal margins, however the price of construction is not falling and building or renovating remains almost 30% more expensive now than pre-COVID after an extended period of escalating costs,” said CoreLogic research director Tim Lawless.

Mirvac has topped out Trielle at Melbourne’s Yarra’s Edge, with more than 70 per cent of the riverfront development sold and approximately 80 per cent of purchasers intending to make their apartment a home.

The figures, released on September 22, point to an owner-occupier audience for one of the precinct’s final residential towers. Mirvac began developing Yarra’s Edge in 2003, and its latest addition occupies one of the remaining absolute riverfront sites.

Mirvac CEO of Development Stuart Penklis said existing residents were among those moving up within the neighbourhood.

“Many purchasers already have a connection to Yarra’s Edge,” Mr Penklis said, describing buyers whose changing needs were encouraging an upgrade within the precinct.

“As one of the final residential towers within Yarra’s Edge, Trielle represents the culmination of more than two decades of creating one of Melbourne’s most established and sought-after waterfront communities,” Penklis said.

“Positioned on the Collins Street axis with absolute river frontage, Trielle offers residents a rare opportunity to enjoy sweeping views across the Yarra River, Melbourne skyline and Port Phillip Bay, while remaining seamlessly connected to the CBD. With Trielle now more than 70 per cent sold, we’re continuing to see strong demand from buyers seeking quality homes in established locations.”

The developer also flagged a penthouse and sub-penthouse collection with larger layouts, premium finishes and broad outlooks. The planned wellness centrepiece, The Oasis, encompasses a 900-square-metre elevated urban rainforest.

Mirvac General Manager Residential Development Victoria Elysa Anderson said Trielle had resonated strongly with buyers seeking a rare lifestyle offering in Melbourne.

“Opportunities to secure a new luxury residence on a riverfront site of this calibre are incredibly rare, particularly within a community like Yarra’s Edge,” Anderson said.

“What makes Trielle unique is the combination of exceptional views, world-class residential facilities and the lifestyle that already exists around it. Residents are buying into a mature waterfront community with parks, promenades, dining, wellness and strong community connections already in place.”

The 45-level tower brings a substantial new presence to that waterfront. Its residential offering spans one-, two-, three- and four-bedroom apartments, with Signature, Prestige and Sub-Penthouse collections accommodating different household sizes. The north-facing position connects the apartments visually to the river and city beyond.

Seven storeys above the promenade, the planned Oasis combines planting and a running stream with a Scandinavian-inspired wellness club developed with spa specialist Naomi Gregory. Facilities include a 25-metre lap pool, hot magnesium pool, sauna, hydrotherapy, a gym, yoga and Pilates room, and treatment spaces.

The amenity extends beyond exercise. Residents will have access to The Biblioteca library and workspaces, ground-floor work pods, and The Salone piano lounge. A private Chef’s Table dining room offers a setting for larger gatherings, while a cinema, games room and sports lounge broaden the entertaining options. Concierge services and a dog-wash area support everyday routines.

Trielle comprises a collection of one, two, three and four-bedroom residences. Reflecting strong demand from owner occupiers, approximately 80 per cent of purchasers to date intend to live in their homes, highlighting the project’s appeal to those seeking a long-term waterfront lifestyle.

Mirvac has recently delivered The Albertine, a premium apartment development on the edge of Melbourne’s CBD, and is nearing completion of Prince & Parade in Brunswick, further strengthening its portfolio of thoughtfully designed apartment communities in some of Melbourne’s most sought-after urban locations.

Why investors are switching from residential property to the commercial market

Cashed up Australians are showing greater enthusiasm for the commercial sector as interest shifts from the home market

Mirvac’s 45-level Trielle has topped out at Yarra’s Edge, pairing riverfront apartments with wellness facilities, private dining and resident services.