Private money is gearing up to buy property as low interest rates stimulate investors and business confidence improves, banking and property experts say.
Business confidence rose in September to its highest level since March 2010 following the federal election, the latest NAB monthly business survey shows.
The survey revealed signs of better conditions in finance, business, property and construction, but the outlook for employment remained subdued and mining and manufacturing conditions were "worryingly weak".
Bank of Melbourne head of property finance Jim Serafim told a Bank of Melbourne-CBRE business gathering on Tuesday that confidence was "certainly back".
"Our research from a select body of high net worths [individuals] suggests that people are looking for that next opportunity for better returns and greater yields on investments," Mr Serafim said.
"A lot of our clients are now getting primed for that next acquisition, that next spend in their business."
Owner-occupiers were driving industrial land sales, according to CBRE.
"Given the cost of debt, they've been quite aggressive. Speculative developers on the smaller scale have also been quite aggressive in putting up sheds and seeking a tenant," industrial investments director Rory Hilton said.
A surge in speculative industrial space had increased the risk of vacancy, particularly in greenfield locations. And strong competition was driving incentives for tenants, he said.
BoM financial markets manager Andrew Pryor said the US Federal Reserve's tapering of its stimulus package was "putting upward pressure on interest rates". Three and five-year cash rates were starting to pick up, Mr Pryor said.
Quality institutional assets, including some recent office sales in St Kilda Road, were being leveraged to 65 per cent of their value or even higher, Mr Serafim said.
There were also compelling arguments for private or institutional buyers to get hedging in place and fix the debt for a longer term, he said. Four out of five of office assets sold in St Kilda Road this year were bought by private investors or syndicates.
The stabilisation of vacancy rates was improving confidence on the boulevard, CBRE said.
Higher vacancy rates in the city had encouraged a "flight to quality" assets but if conditions continued to lift there would be opportunities in B and C-grade assets.
"As soon as we see a glimmer of a correction in the occupier market we will see a wave of money directed towards secondary class assets in the city. That will be the big space for us next year," capital markets director Kiran Pillai said.
Private investors were facing a shortage of assets in neighbourhood shopping centres.
The impact of internet shopping on discretionary retailers was pushing big institutional investors towards smaller neighbourhood centres and away from larger-format retail spaces.
The number of centres being offered for sale had contracted dramatically, having an inflationary effect on prices, CBRE retail investments manager Justin Dowers said.
Two neighbourhood centres, Hogans Corner and Healesville Walk, had sold this year on tight yields of 7.37 and 7.6 per cent respectively, Mr Dowers said. Prime yields in 2012 were generally about 8 per cent, he said.
The biggest short-term threat to the "upswing" in confidence was the partial shutdown of the US government, prompted by Congress' failure to pass a budget, Mr Pryor said.
"If the US happens to default on their debt, the result will be catastrophic," he said.