Knight Frank / House Views Report / Q3 October 2022 /
Knight Frank / House Views Report / Q3 October 2022 / 3 Knight Frank / Quarterly Report / July 2022 / 3
Q3 House Views.
The Impact of Inflation on Property The current high levels of inflation have been caused by a combination of restricted logistics and labour supply (partly due to de-globalisation of trade) as well as some elevated spending coming out of COVID The stability of property yields to date is threefold. Firstly, a traditional flight to bricks and mortar during a period of uncertainty in the share market, secondly property is history’s hedge to inflation; and thirdly, the GFC’s lesson created a property market with high levels of equity that is far more resilient against rising debt costs compared to the high leverage markets of the 1990s and the GFC. In essence, as property is not as liquid as other investment classes, it tends to look beyond short-term volatility in the market.
Rising inflation can be beneficial to property rents, particularly assets with annual increases indexed to the Consumer Price Index. Knight Frank Newcastle’s view is that quality assets with secure cash flow should see their values hold, or potentially even increase, whilst secondary assets with existing vacancy or upcoming leasing exposure will experience a softening in value.
Welcome to Knight Frank Newcastle’s Q3 2022 House Views on the Newcastle and Hunter market. The changing economic environment driven by a combination of rising interest rates, rising inflation and general global uncertainty is set to have an impact on the local commercial property market. Whilst the industrial market remains buoyant, there are some headwinds in the residential development sector. Despite this, the foundation of the local economy remains strong with low unemployment, high coal prices, and a diversified employment base.
Economic Factors Throughout the third quarter, the Reserve Bank of Australia continued to raise interest rates by 50 basis points in both August and September. The Reserve Bank raised interest rates by 25 basis points in October with the RBA Cash Rate now sitting at 2.60%. Economists are predicting interest rates to rise above 3.0% during the first quarter of 2023 as the RBA focuses on compressing domestic inflation pressures.
The effect of rising interest rates has yet to see a significant impact on investment yields throughout the September quarter however limited transaction activity over this period has made it difficult to determine the impact of rising interest rates on commercial property yields. Knight Frank Newcastle is currently witnessing a lag between interest rate movements and any softening of yields, however enquiry rates have been impacted.
Matt Shaw Partner, Valuations & Advisory
Darby Plaza 352 Hunter Street, Newcastle
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