Since inflation began to rise in late 2020, and peaking at 7.8% in December 2022, the Reserve Bank of Australia (RBA) continues to keenly observe how rising inflation is impacting the costs of everyday goods and services, both domestically and abroad. Seeking to bring inflation to within its target range between 2 -3 percent by adjusting the cash rate.

Recent Monthly Inflation data (which only looks at around two-thirds of the items included in the quarterly CPI basket) for the month of November 2023 fell a further 0.6%, to be at 4.3%, continuing its downward trend.

This continuing trend towards the target range should influence the RBA to continue to hold the cash rate firm in their next meeting on the first Tuesday of February.

Further supportive data in holding the cash rate firm is the changes in the national employment data. While the national unemployment rate has remained steady at 3.9%, the configuration of Australian employment is important. Full time jobs fell by 106,600 positions, with Part time positions up by 41,400 and the participation rate fell slightly. With job advertisements continuing to fall, the overall labour market is showing consistent signs that it is easing, placing lower inflationary pressures from wages growth, which is the RBA desired outcome.

Impact on Commercial Property Investors

1. Stable Cash Rates: The expectation that the Reserve Bank of Australia (RBA) may hold the cash rate firm due to the downward trend in inflation is significant for commercial property investors. Stable cash rates help maintain borrowing costs at current levels, which is beneficial for investors who rely on financing for property acquisitions or developments. Lower or stable interest rates make commercial property investments more attractive compared to other investment options, potentially increasing demand in the market.

2. Inflation and Rent Growth: As inflation continues to trend towards the RBA’s target range, commercial property investors may see more predictable rent growth. High inflation periods often lead to rent increases as landlords pass on rising costs to tenants. However, as inflation stabilises, rent increases may moderate, leading to more stable rental income streams. This predictability can make long-term investment planning easier and less risky.

3. Employment Trends and Demand for Commercial Space: The shift in employment configuration, with a decrease in full-time positions and an increase in part-time roles, could impact the demand for commercial space, particularly in office sectors. A softening labour market might reduce demand for office spaces as companies adjust their space requirements to fit a changing workforce. This could lead to increased vacancies or slower lease-up rates for new developments, potentially impacting investor returns.

4. Easing Wage Pressures: The article notes that the labour market is easing, which is reducing inflationary pressures from wage growth. For commercial property investors, this could mean that operational costs, including those related to staffing for property management, might not rise as sharply. This stabilisation can contribute to better control over expenses, thus improving net operating income (NOI) and overall property value.

5. Market Confidence: The overall economic stability suggested by the data—falling inflation, stable unemployment, and easing wage pressures—can boost investor confidence in the commercial property market. When investors perceive the broader economic environment as stable, they are more likely to make new investments or expand their portfolios, contributing to a more robust and competitive market.

In summary, for commercial property investors, the current economic indicators suggest a period of stability and predictability. While there may be some challenges related to changing employment trends and their impact on office space demand, the overall outlook is positive, with stable borrowing costs and controlled inflation likely supporting investment decisions in the commercial property sector.

Written by McGees Property Brisbane Valuations

Scott Campbell and Owen Thorn 

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