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The Future of Commercial Property

Don’t Believe the Property Market Hype!

The Residential Market may be exploding, but what is really happening in the commercial sectors and what does it mean for you?

In almost all major east coast cities, residential sales records appear to be being broken every week. What’s more, is that the regional markets and lifestyle destinations are even more buoyant with unprecedented demand putting enormous upward pressure on prices and the lack of supply only further ensuring that the “Bull Run” on these markets looks set to continue for some time.

But for the office, retail and industrial markets, both for sale and lease, the same buoyancy is not being experienced. Without question there are some regions that are experiencing unprecedented commercial activity mainly driven by the shift from historically being largely holiday and tourism destinations to seeing a huge influx of new clientele choosing to call their favourite local holiday destination home on a full-time basis. With the increase in population has come an increase in local spending which has seen new businesses open and existing businesses expand to cater for the increase in demand. The good news is that the areas that have benefited from this are likely to experience the up tick in trade locally to be the new normal and for there to be long lasting effect of the newfound local popularity.

The big looser out of Covid has been the capital city office markets. The Property Council of Australia has just released its latest Office Market Report. The results showed vacancy rates increased across the Sydney (8.6%), Melbourne (8.2%), Brisbane (13.6%), Perth (20.0%) and Adelaide (16.0%) CBDs during the second half of 2020, underpinned by negative net absorption and/or rising supply. The biggest increases in vacancy rates were in Sydney and Melbourne (up by 2.3 and 3.0%pts respectively). Canberra’s Civic market saw the smallest rise (0.5%pts to 12.8%) across the six largest CBD markets as positive net absorption was just outpaced by supply. This trend is tipped to run through at least the first half of 2021.

The industrial markets have been relatively robust nationwide and were benefactors of the pandemic. As the online retail sector exploded, almost overnight there was huge pressure on supply for warehouse and logistics ready facilities. This demand had a hugely positive effect on the strength and resilience of the sector.

As for traditional retail it has been a mixed bag with some retailers experiencing excellent trading conditions and others suffering badly due to Covid restrictions and the move to online retail. Consistent with the observations made earlier, retail in areas that have seen the growth in full time population and the transition from holiday location to residential destination have excelled. The extent of fall out in the traditional large format shopping centres won’t truly be known for some time but given most centres have at least one of every kind of retailer there is sure to be some vacancy increase. Retailers that have relied on the CBD trade in the capital cities have suffered badly given the extended period of working from home that occurred in almost all States. High rents and an almost exclusively office worker driven customer base have seen a much higher than normal amount of vacancies on the ground floor retail of Capital Cities.

With a vaccine rollout now forecast to occur over the balance of 2021 and confidence growing that the worst of the pandemic is now behind us there is unlikely to be any further unexpected hurdles for the local commercial markets and we may well be experiencing the “New Normal” as far as each of the commercial markets is concerned.

The fundamentals remain the same however, if you have a tenant in your property it has never been more important to work with them to ensure the long-term viability of their business, even if it means a reduction or loss of rent in the short term. If your property is vacant, look for the growth industries and businesses that have emerged during the last 12 months and work with your asset management and leasing team to attract these opportunities. Be prepared to adapt and be flexible to ensure that you are at very least in conversation when these tenants are considering their options.

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