Move to income producers may save property investors

Rising interest rates will be the Achilles heel of the property investment market, according to Jones Lang Lasalle sales and investment managing director John Henderson.

Rising interest rates will be the Achilles heel of the property investment market, according to Jones Lang Lasalle sales and investment managing director John Henderson.

“While user demand remains a key determinant of investment confidence, the low interest rates have provided an arbitrage which has given strong support for property,” he says.

However, the changes to the property investment market away from high capital-growth properties to well-leased income-producing investments may cushion any downturn, Henderson says.

“The ability to realistically achieve targeted internal rates of return ensures the market is more sustainable. High initial yields underpin the market and reduce reliance on capital growth,” he says.

The capital values and rentals in the nineties are still significantly lower than the previous market peak of 1989 and investors are wary of fuelling another property boom, Henderson says.

Sydney’s CBD construction boom has been the chief indicator of future office market performance.

JLL leasing managing director David Bowden says the lessons learnt from the Sydney boom will be applied to other capital city office markets in the next four to six years.

According to Bowden, there will be four main issues influencing the future direction of the office leasing market:

? efficiencies and densities;

? flexibility of office use and lease terms;

? increasing competition in the business environment;

? structural changes in business operations.

Bowden believes that due to technology advances and e-commerce, the traditional criteria of image and location for a company will be replaced by effectiveness, demographics and staff suitability.

“The trophy buildings may still house the major corporations, but the back office could be anywhere in the city, state, region or even hemisphere,” he says.

“This will effect the makeup of accommodation. While working from home has not meant the end of CBD office markets, major changes like the success of suburban markets confirms the change.”