Australia's office sector will continue to compress, while retail is a forgotten asset class with opportunities.

That's the assessment of Savills Australia and New Zealand CEO Paul Craig, who has given his predictions for Australia's commercial market in 2020. 

The sector is coming off an eventful 2019, during which investor confidence was tested by external and domestic pressures. 

At a glance:

• Savills Australia and New Zealand CEO Paul Craig has given his forecast for Australia's commercial market in 2020, following an eventful 2019 where he said the market showcased its resilience.
• Mr Craig believes the country's commercial office sector would continue to compress throughout the year, supported by limited supply and developer discipline.
• He also said the retail asset class was worth looking at, especially given the population densification and socio-economic conditions of the surrounding demographic.

Mr Craig said the resilience shown by the market placed it in good stead for 2020.

“The property market in 2019 has fundamentally stood tall," he said.

"This low for longer interest rate environment means real assets and in particular real estate will continue to be well sought after as investors chase yield.

“In particular, Australia will continue to attract foreign capital supported by a cheap AUD, positive yield spreads to debt enabling positive funding from leverage and the lag effect of cap rate compression due to some skepticism of further runs in yield as we hit all-time yield lows/highs in valuation"

Mr Craig said the country's commercial office sector would continue to compress throughout the year, supported by limited supply and developer discipline.

“CBD tenants are beginning to push their boundaries of space capacity," he said.

"A lot of our clients will continue to favour the Sydney and Melbourne CBD, North Sydney, Parramatta and interestingly are beginning to think Perth has reverted too far and may provide risk opportunities.

"As with Perth, Brisbane could also provide risk opportunities as vacancies contract and new development remains scarce."

Retail 'worth looking at'

There was no shortage of significant retail transactions towards the end of last year, with the sale of half stakes in Adelaide's Westfield Marion and Perth's Garden City transacting for a combined total of $1.24 billion.

Mr Craig said retail was worth looking, especially given the population densification and socio-economic conditions of the surrounding demographic.

"Retail is an interesting asset class and perhaps with tough retail sales turnover, a forgotten asset class with opportunities," he said.

"With Centres such as Marion in SA and Booragoon WA recently trading relatively easily for their financial size and demand for non-discretionary retail still sought after (especially by private investors and syndicates), there remain no forced sellers in response to financiers requirements, although there have been funds withdrawal demands that may have prompted transactions."

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