Australia’s commercial property market has long been a happy hunting ground for investors, but rising bond yields are threatening to ruin the party.
One of the biggest surprises for investors this year has been the extent to which Australia’s commercial property market has remained impervious to the sharp rise in long-term borrowing costs.
But, curiously, neighbourhood shopping centres and office blocks continue to trade at prices that are at, or close to, record highs. And that meansThe high prices investors are paying for suburban office blocks are somewhat surprising in light of the shift to working from home that was inspired by the coronavirus pandemic.
And although the share price has tumbled about 15 per cent this year as US bond yields have marched higher, its extraordinary performance over the past three years indicates that investors believe the pandemic has led to a significant, permanent shift to online shopping. So, the question arises as to why prices for suburban shopping centres and office buildings have remained resilient, even though Australian bond yields have more than quadrupled from their pandemic low in March 2020.
What’s more, plentiful liquidity meant that it was easy for investors to sell commercial property assets at high prices.
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