Don't believe everything you read...

The most recent survey from the Westpac-Melbourne Institute has shown a 3.5% increase in the index of Australian consumer sentiment for July 2006, further supporting the Reserve’s reasoning behind this months interest rate hike.

The improvement in sentiment has been attributed to reports of stabilising petrol prices and a rebound in the share market, and notably the latest round of tax cuts made effective from July 1. 

Reports from this news stated that consumers have been feeling more confident about their family finances, with suggestions that the tax cuts will also filter into retail spending.

Supporting these reports, survey results released in late 2005 show a steady increase in household debt levels, now reaching a record 150% of household income, also suggesting that consumers have been continuing on an upward spending trend.

Whilst it would seem from these recent indicators that the commercial property markets should be benefiting from the current sentiment as businesses thrive, it is worth noting that our experience at a grass roots level is sometimes contrary to the statistics published by the major research houses.  For example, many smaller retail operators in greater Sydney are currently experiencing serious difficulties in their respective markets, finding it greatly challenging to meet their financial obligations.

As such, a range of landlords are having their hand forced and implementing loss minimisation strategies such as tenant repayment plans, and indirect financing for those who are unable to meet their rental obligations.  Some retailers have made the decision to pull out of the market, and being unable to end their lease consequently negotiate sub-lease arrangements; and in particularly difficult situations we have sighted retailers running out on their tenancies altogether in sheer desperation. 

Similar cases can also be found in the smaller end of the office sector, typically spaces of 50 – 150 sqm occupied by newer and or small businesses.  Although there hasn’t been the same level of defaults, it is the take up of vacant space that is worrying many small investors.  In many areas, particularly non core CBD, the leasing of office space has been slow and in some cases we are aware of stock that has been on the market for over 12 months with very little serious interest.

Whilst we do not directly dispute the reports of the major research bodies, we point out that our day to day experiences with smaller, non institutional operators often differs significantly to published findings.  Although the information presented is valuable, the specific dynamics of the market at a macro level do not always directly transfer to the private investors position, or at the very least not always in the same way.  Additionally, often even the most recently released reports are using data that is 3 months old and is reflective of historical situations, and therefore is not necessarily indicative of how the market is currently performing.

Please contact Benjamin Mulae, Director - Property Services on (02) 9438 3233, should you have any queries.