The successful formation of the new centre-right coalition government was a clear call for change on election day. In talking with clients and customers most view this as positive. While we are not delusional that there will be immediate changes in addressing systemic economic and social issues the expectation is that improvement is on the way and possibly an easing in interest rates as soon as the middle of next year. This would bring a sigh of relief, countrywide, given the huge impact of high interest rates is so widespread.
The last quarter has been characterized largely by ongoing resilience. There has only been a steady flow of listings come on stream for both lease and sale. The bulk of which have been taken up. As a result stock overall is still tight. Leasing remains strong, particularly in industrial, and rental rates are definitely holding firm, supported by the lack of stock and the cost of replacement.
There have also been some reasonable sales, both vacant and investment. While we have seen a movement in yields of 1-2%, inevitable based on the significant upward movement in interest costs, capital values have, at least partially been insulated by higher rents and intrinsic value. In fact, this underlying land and building value approach is becoming more relevant perhaps than the alternative capitalization rate approach to valuation. This is certainly a sure reason that owner occupiers are active presently when considering the cost and hassle associated with building new. New development activity remains low as the impasse in matching up cost, required rents and developer returns continues. This will ultimately constrain supply as we get out the other side of this tighter economic cycle.
There are definitely green shoots appearing in the residential market. Sales volume is up with increasing stability in prices. People are back listing auctions and clearance rates are considerably higher. For private treaty sales we are also regularly seeing evidence of offers in competition and in some cases deals are being concluded above the asking price. Changes in interest rate deductibility will add fuel to that fire and we have seen residential investors return to the market to meet a huge tenant demand and in anticipation of that policy change.
We have a list of buyers looking to secure stock so if you are considering it is still a good time to sell. For the first time in a significant while bank deposit returns offer a strong alternative for owners looking to divest property as they look to simplify their life and/or retire. We would also like to take this time to thank you for your support in 2023 and wish you and your families a safe and enjoyable upcoming festive season and to wish you well for the New Year.
If you have any selling, leasing or body corporate requirements please contact your preferred agent.