Cushman & Wakefield have just released a brief research note outlining the expected impact on the Commercial Real Estate Market and related commentary.
Last night the Treasurer handed down the 2018/19 Federal Budget, while much has be written on the topic, this note will focus on the issues more relevant to commercial real estate (CRE).
While CRE is not specifically addressed in the Budget, the outcome is generally very positive for the sector.
The next federal election is potentially just 13 weeks away, so a goody giveaway could be expected and indeed the Government is promising tax cuts and a return to surplus in 2019/20. This has been achieved by extra revenue of around $35bn as a result of a stronger economic, profit and employment growth.
So gain, mainly for low to middle income Australia, with limited pain, mainly for those less likely to complain such a tobacco black marketers and tax minimising multinationals.
While some of the tax gains will start from 1 July 2018, the tax initiative is a seven year plan. A federal election is possible as soon as 4 August 2018 or as late as 18 May 2019 and with the Coalition trailing in the polls, there is no guarantee any of the longer-term initiatives will be implemented. The short-term initiatives are also unlikely to have an easy passage to legislation with the Coalition requiring crossbench support in the Senate. However, with limited pain in the Budget and potentially plenty of gain, politicians may be reluctant to get between the electorate and a tax cut.
The Government noted the Budget is about tax relief, business investment and “living within our means”, which it hopes will lift consumer and business sentiment, as well as the Coalitions re-election chances.
Economic and wages growth are expected to pick up and along with solid employment growth should provide a boost for the commercial real estate sector.
There is expected to be limited direct impact on the office market though measures to encourage business investment should help maintain strong business conditions and tenant demand.
Tax cuts for low and middle income earners should assist with retail sales growth.
An ongoing commitment to infrastructure investment is positive for long-term economic growth and the industrial sector in particular.
Investment demand for Australian CRE is likely to remain strong, supported by positive economic growth and relatively low interest rates.