Why a rise in high-end commercial property investment is good for the small investor

Over the past several months, I have been recommending you refrain from trying to pick the bottom of the commercial property market.

And certainly you should not wait for overwhelming evidence of prices being "on the up".

Anyway, last month you were probably given the best confirmation you needed in an article by Carolyn Cummins (The Age, BusinessDay: January 24, 2013).

In the article, she talked about high-net-worth investors having now joined institutional investors and sovereign funds at the top end of the commercial property market.

Driven by lower interest rates, demand has increased for healthcare properties and large-scale shopping centres, plus traditional offices and industrial property.

How will this affect smaller private investors?

On the face of it, you can be forgiven for thinking that this would have virtually no impact whatsoever. But just stop and think that through for a moment.

As demand picks up at the top end for commercial properties, prices will inevitably begin to rise.

Therefore, the properties in the $40 million to $60 million price bracket are quickly pushed into the $50 million $70 million bracket. As a result, the $40 million $60 million buyers are forced to start bidding on the $30 million to $50 million properties.

As such, these price increases will quickly work their way down through the entire commercial property market — much like the "ripple effect" of a pebble in a pond.

Therefore, it is only a matter of time before you soon feel the effect of price increases occurring down in the $1 million to $2 million price range.

Bottom line: By the time you reach the middle of 2013, you should see the start of this upward trend in prices for the lower end of the commercial property market.

As you can appreciate, that will then only be accentuated when renewed confidence returns in earnest within the Australian economy as a whole.

And this was further emphasised in last week’s front-page article in the Financial Review: "Switch is on from bonds to shares".

Therefore, now is the time to make your move — rather than be left to merely follow the herd.

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property. You can visit his website Property Edge Australia to help you get the most out of your commercial property investing.