85,000 new businesses trigger commercial space squeeze

Business numbers grew in every state and territory, with Western Australia leading the charge, according to analysis by Ray White. An extra 12,248 businesses were registered in Western Austrelia, and 453 existing businesses also relocated there in the 12 months to June 30. 

White-collar businesses accounted for most of the new entrants across Australia and most are likely to need office space, says Vanessa Rader, Ray White’s head of research.

“Office-based industries are where the strongest case for new demand sits,” Rader says. “Professional services, finance and insurance, real estate, information media, administrative services and public administration together added 34,502 businesses, up 3.6 per cent and the fastest rate in four years. 

“Finance and insurance grew 4.3 per cent, real estate 3.7 per cent and professional services 3.6 per cent, with information media and telecommunications posting its best year of the period at 4.0 per cent.

“Much of this activity is small in scale, which favours smaller suites, strata offices and metropolitan locations as much as CBD towers.”

Office vacancy stood at 16.1 per cent in the six months to June, according to the Property Council of Australia, with higher rates in non-CBD markets (18.9 per cent) and a looming supply shortage in cities such as Perth and Sydney.

Retail trade businesses increased by just 125, but this was the first rise in four years. With national average retail vacancy at 11.1 per cent, new retailers will face tighter conditions than office-based businesses.

However, industrial businesses will face the toughest struggle for property. In the year to June 30, 12,127 businesses in the transport, postal and warehousing sectors were started. With JLL Research showing national industrial vacancy at 4.6 per cent in the September quarter, these businesses will find it tricky to find industrial property in the right location at the right price.

Rader says there are promising signs of relief in some markets, but industrial remains a competitive space because of increased demand from owner-occupiers.

“What we’ve seen over the last kind of five years is this massive uptick in owner-occupier investment, particularly in industrial, where there was really strong growth in rents,” she says. 

“People were trying to shelter from rents and have control over their own destiny, if you like, so they were buying their own premises and that continues to happen, even though interest rates have gone up.

“However, the vacancy has ticked up a little bit in a lot of markets, so there is availability.”

Competition between buyers is particularly tight in the industrial and large-format retail space, says Tas Costi, co-founder of commercial property buyer’s agency Costi Cohen.

“Industrial and large format retail are the most competitive sectors with pricing holding firm,” he says. “Quality stock typically transacts to owner-occupiers who are willing to pay more than an investor because they need the building.”

Costi says most of his clients buy in the $5 million to $7 million range, with many transactions occurring before a property is even advertised for sale.

“Business owners have no shortage of options on the market, however good-quality stock in tightly held areas is scarce,” he says.

“Most of the occupiers we work with have already tried to run the search themselves or have missed out on the right opportunity. By the time the right property appears online, it has often already sold.