As we proceed through 2023, and I look back at my last communication to you in January this year, it is clear that our expectations from the beginning of the year, are in general, coming to fruition.
The market in clearer focus
As we reach near the top of the interest rate cycle, I feel that the outlook ahead for commercial property is coming into somewhat clearer focus. This is providing us at Natgen with the confidence needed to re-enter the market for investment assets for Natgen Investment Trusts, after a hiatus of nearly 6 months. Our acquisition activities will be centred around the areas previously outlined for our attention, namely:
- Non-CBD office;
- Regional convenience retail; and
- Value-add industrial assets.
Added to this will be areas addressing the long term trends outlined in my last letter. There remains a great deal of commentary about the directions of markets and possible mid-term and longer-term outcomes. We are seeking to stick to the basics in setting our own view of future interest rate movements and property values.
On this basis, we expect to be using 5% per annum as our long term average interest rate for our forecasting purposes.
Whilst we expect spikes and dips in this average rate, we believe this to be consistent with market indications at the moment and consistent with long term interest rate trends. Whilst there are market expectations of a softening of yields in the market due to increasing interest rates, there are also some contra-indicators. For example, as inflation rises, expectations of rental rates increases and the cost of replacement of commercial stock increases in line with construction cost increases. It is these competing factors which ensures the long term value of commercial property when well located and maintained.
Natgen development projects
The various Natgen development projects are progressing apace, with design and funding activities running alongside with the finalisation of the Natgen Development Trust ML23 capital raising. The demographics of the Gold Coast region have provided significant impetus to the growth of the self storage market, which is at the centre of much of our current development activity.
Legacy – 100 years
In this 100th anniversary year of Legacy, and as Anzac Day approaches, I wanted to share that my newest role is as Campaign Chair for Legacy’s Bring it Home Campaign to raise funds needed to build a new Legacy House at Greenslopes. The new Legacy House will deliver on an old promise, respond to today’s needs and create a new link in the chain of care for veterans’ families which Legacy commenced a century ago this year.The new Legacy House will be a warm, welcoming centre where veterans’ widows and families can receive the support they need, close to the Greenslopes Hospital and medical research precinct and will house several key veterans’ support services, who will work collaboratively together.Like most everyone, I have known of Legacy my whole life and could not think of a more worthy organisation to support. The renewal and focus on family outcomes for veterans really appeals to me as a very positive approach to very difficult circumstances in which today’s military families can find themselves.Over the next 6 – 9 months I look forward to having conversations with people who might want to be involved in this important project. Please let me know if you would like to hear more.
Future events
As we await the federal budget in the coming days, we have been reminded that there are emerging spending priorities which will need addressing in this and future budgets. Much has been made of defence spending, but other priorities will also need addressing, including NDIS blow-outs, housing stock replacement and augmentation and the inherent costs of energy transition. On this basis, I believe that building on the tax base through reduction of allowances and possible extension of the attack on superannuation taxation concessions are likely to continue. In this environment, tax efficient investment choices will be paramount. In this sense, commercial property performs solidly in all economic environments. I wish you well until we next correspond.
Regards
Steven Goakes