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Robust commercial property lending defies rate rises

October 12, 2022

The latest data from Australian Prudential Regulation Authority (APRA) shows that commercial real estate lending has continued to grow over the last 12 months despite the shadow of higher interest rates and the challenges created by the pandemic.

According to the prudential regulator commercial property loans held by Australian banks increased by 12% compared to the June 2021 quarter. Total commercial property loan limits were $413.7 billion in June 2022 compared to $369.5 billion the previous year[i].

Craig Betalli, Senior Broker at Our Broker said he was not surprised by the result. “My view at the start of this rate rise cycle was that commercial property sales were going to peak as there’s less emotion involved in these transactions than say buying a home,” he said.

“Rather when it comes to a commercial property transaction the emphasis is on the return on capital. So as interest rates fell the leverage on the rental income translated into higher prices or growth in the commercial property sector.”

Current lending trends

Craig says that despite a slight softening in new lending commitments, refinancing is driving the commercial property loan market. “There is no doubt that rates between 5 and 6% are attractive to current commercial property borrowers while the banks seem to still have an appetite for lending.

“Valuations are still stable but were coming in a bit under at the start of the rate rise cycle but with limited sales it’s hard to tell.”

With the urbanisation of some older industrial areas closer to Australia’s CBDs it has meant a shortage of stock. Craig explained, “With more industrial and office space in cities such as Sydney being converted to residential, there’s also a squeeze on commercial space in the suburbs as people try to find a workspaces closer to home.”

For all your commercial property loan needs whether you’re an investor or owner-occupier contact Our Broker on 1800 913 677.

[i] https://www.apra.gov.au/news-and-publications/apra-releases-quarterly-authorised-deposit-taking-institution-statistics-12