Tasmania’s commercial property and construction sectors are entering a pivotal phase, with strong long-term fundamentals colliding with short-term economic and industry challenges. That was the key takeaway from a recent Between the Lines Live webinar hosted by Ray White Commercial’s Head of Research, Vanessa Rader, featuring industry leaders Tom Balcombe (RWC Tasmania) and Jenna Cairney (Master Builders Tasmania).
Despite global uncertainty and rising costs, confidence in Tasmania’s future remains firm. As Jenna Cairney put it, “there’s a lot of excitement on the horizon,” particularly given the scale of projects planned across the state, even as near-term pressures persist.
A market defined by resilience - and constraint
Tasmania’s commercial property sector continues to demonstrate resilience, particularly across retail, industrial and tourism-related assets. “There is still plenty of capital that needs to be placed across the state,” Mr Balcombe said, pointing to ongoing demand from both investors and occupiers.
However, that demand is playing out in a constrained environment. Development activity, particularly in the office sector, has slowed sharply due to feasibility challenges. “We’ve got no development in the office space,” Mr Balcombe said, noting that the market has instead shifted toward repositioning existing assets. “We’re seeing a real flight to quality,” he added, with tenants upgrading into better buildings rather than waiting for new supply.
From a construction perspective, Ms Cairney reinforced the broader constraints shaping the market. “We’re operating in a really, really difficult climate,” she said, pointing to global uncertainty and ongoing disruptions that continue to affect delivery across all asset classes.
Industrial: from boom to plateau
Industrial property has been one of Tasmania’s strongest-performing sectors, particularly in Hobart’s Cambridge precinct. “There’s been an undersupply historically,” Mr Balcombe explained. “A lot of small businesses, tradies, builders, plumbers, have needed a home.”
That demand, combined with low interest rates in recent years, drove a surge in development and investor activity. But conditions are now shifting. “We’ve probably got a slight oversupply in certain pockets,” Mr Balcombe said, particularly as new strata units come to market.
Ms Cairney noted that this aligns with broader construction trends. “We’ve seen consistent growth in the industrial space, but our forecasts show that it’s probably peaking and about to plateau,” she said, pointing to a softer outlook for industrial construction over the next five years compared to other sectors.
At the same time, demand is evolving. “We’re seeing larger national tenants needing much bigger spaces,” Mr Balcombe said, highlighting a shift toward larger-format industrial requirements that could shape the next phase of development.
Retail rebounds, led by convenience
Retail is quietly reasserting itself as a strong performer in Tasmania’s commercial landscape. Hobart’s CBD continues to record relatively low vacancy rates, supported by consistent foot traffic and a strong tenant mix.
“It’s a healthy vacancy rate at the moment; very busy, lots of foot traffic,” Mr Balcombe said, adding that “retail has probably been the hot space over the last 12 months.”
Neighbourhood shopping centres are emerging as a standout segment, with their convenience-based model proving particularly resilient. “They’re certainly the asset class that’s seen some of the best activity,” Mr Balcombe said.
From a construction perspective, Ms Cairney pointed to retail as an area of future growth. “We’re expecting bigger lifts in areas like retail and community infrastructure,” she said, as activity begins to shift away from industrial-led construction.
Construction sector under pressure
While property fundamentals remain encouraging, the construction sector is facing significant headwinds. Ms Cairney outlined a range of challenges impacting the industry, from rising costs to workforce shortages and regulatory complexity.
“We’ve seen cost of construction consistently and significantly rise since COVID,” she said. “That’s materials, but also labour costs going through the roof.”
Supply chain disruptions continue to play a role, with Ms Cairney warning of a “long tail of disruption” even after global conditions stabilise. At the same time, labour shortages remain a critical issue. “It’s everything - you can’t look at anything in isolation,” she said. “It’s labour supply, labour costs, materials and planning.”
Regulation is another key pressure point. “The complexity that goes alongside building in any space nowadays is significant,” Ms Cairney said. “Time is money, and complexity leads to construction blowouts.”
The result is a marked decline in productivity. “It takes 40 to 60 percent longer to build than it did before COVID,” she said, adding that while some reforms are underway, “it just doesn’t go far enough.”
A pipeline of opportunity
Despite these challenges, Tasmania’s forward pipeline remains a major source of optimism. “We’re seeing a really exciting pipeline moving forward,” Ms Cairney said, highlighting strong growth expectations in non-residential construction and civil works.
“There is a significant pipeline of work over the next five years,” she added, pointing to major projects including the Macquarie Point stadium, hospital upgrades, renewable energy infrastructure and large-scale data centre developments.
However, that pipeline also creates tension within the market. “There’s going to be competition for labour,” Ms Cairney said, as major government-backed projects draw resources away from private sector development.
Mr Balcombe agreed, noting that infrastructure investment is both a positive and a challenge. “It’s great, but it does create those pressures around labour and productivity,” he said.
Tourism and hotels: a growth story
Tourism continues to play a critical role in Tasmania’s economy, with the hotel sector showing renewed strength. “It’s still quite tricky to find a hotel room,” Mr Balcombe said, pointing to strong occupancy levels and ongoing investor interest.
New developments are underway, and more are expected as demand grows. Ms Cairney highlighted the potential impact of Tasmania’s future AFL team. “The forecasts indicate there will be a new wave of visitation,” she said. “And people won’t just come into Hobart - they’ll travel around the state.”
She added that early signs are already promising. “We’re already seeing people travel to Tasmania for games,” she said, suggesting that sporting infrastructure could play a major role in driving tourism growth.
The rise of data centres
An emerging highlight in Tasmania’s property market is the growth of data centre infrastructure. The state’s natural advantages are proving a key drawcard. “We’re starting to see more interest because of our environment; it’s a cool climate,” Mr Balcombe said.
Ms Cairney also pointed to the scale of investment flowing into the sector. “That project in Launceston is coming up out of the ground quite quietly but quickly,” she said, referring to a major multi-billion-dollar development that is already generating work for the local construction industry.
The growth of this asset class reflects a broader shift. As Mr Balcombe noted, “these are critical pieces of infrastructure,” supporting future connectivity and investment across the state.
Uncertainty in the short term, confidence in the long term
Looking ahead, both speakers acknowledged that the near-term outlook remains uncertain. “We’re in uncertain times and a high inflation environment,” Ms Cairney said, warning that rising costs and industrial pressures could continue to impact the sector.
She also emphasised the importance of policy stability. “It’s about governments providing certainty and not introducing new policies that add further uncertainty,” she said.
Mr Balcombe echoed the cautious sentiment. “There’s no doubt the sentiment’s a little bit off at the moment,” he said. “We may be in for a bit of a lull.”
However, both maintained a long-term perspective. “If you look at the market over time, it always ebbs and flows,” Mr Balcombe said. “There is still plenty of activity in the market and capital to find a home, so that’s really positive.”
Ms Cairney reinforced the need to focus on the future workforce. “Jobs in building and construction are jobs of the future,” she said. “We need to make sure we’re growing that workforce.”
