The beginning of 2020 has been full of uncertainty, from the devastating bushfires to the global pandemic of COVID-19, so what does this mean for commercial real estate?
“Despite all the doom and gloom, the fundamentals that underpin investment in real estate continue to drive buyer demand,” said Ray White Commercial Queensland Managing Director and Partner Michael McCullagh.
“There will be sectors more at risk than others which will attract scrutiny over tenant covenants, but some sectors will continue to perform strongly.
“There are widespread challenges and businesses experiencing hardship due to the economic downturn resulting from COVID-19, and this will undoubtedly impact commercial leasing.
“The Federal Government has announced a number of measures to encourage tenants, landlords and banks to work together to see through this period, but we’re cautiously optimistic on the post corona-virus market, especially for investment.
“The cash rate is at 0.25 per cent which means interest rates are at record low levels and the cost of funding is cheap, but also money left in the bank is making little return.
“Historically, share market volatility drives investor confidence to more stable investment returns such as property, and this is showing early signs of holding true.
“We expect that when travel restrictions are lifted for both interstate and international buyer groups, potential sellers who are ready to move quickly will see significant upside from the pent-up demand.
“The value of the lower Australian dollar against the US will further drive global capital to our shores.
“We’re taking all of the required precautions, as any responsible organisation or individual is at the moment, but we’re very much open for business.”
Ray White Commercial Queensland Managing Director and Partner Michael McCullagh.
“It’s probably no surprise to anyone, but properties that are exposed to fashion, tourism, education or hospitality will have some challenging times ahead as the physical distancing and non-essential gathering restrictions are enforced,” he said.
“Travel agents, airline companies, car rental companies, food and beverage, entertainment etc. are being significantly challenged.
“Experts expect the worst of this virus to pass within three to six months, after which we could expect a surge of pent- up demand from restricted travel and lifestyle.
“In the meantime, low interest rates, support from lenders and government stimulus packages will hopefully get them through, while fast-food, supermarkets, electrical goods and non-discretionary retailers will continue to thrive.”
“The supply chain and logistics sector will be interesting to watch. As more people are isolated or having to avoid large gatherings to stay home, they’re more inclined to order online and we’ll be watching the e-commerce market,” he said.
“These goods come from warehouses and industrial facilities, and we expect occupier and investor demand for these assets to remain strong.”
“Many are expecting structural changes to occur to the way businesses, especially corporate businesses and professional services, operate. We believe it will accelerate the flexibility of many employers to incorporate remote working as part of their organisational strategy and have greater confidence in the adoption of technology,” he said.
“However, we expect occupier and investor demand will remain strong post COVID-19 as a material change in demand would require a long-term cultural and societal shift which is unlikely to take place during this relatively short time frame. Although it is giving us plenty to think about and watch keenly.”
Alternative investments – medical and allied health, technology
“Commercial properties with medical tenants, unsurprisingly, will remain popular. Although allied health tenants such as physios, chiropractors, optometry etc. might be challenged temporarily, they will continue to be an essential medical service and impact is likely to be short-term,” he said.
“One of the interesting impacts this will have will be on how we view technology in the workplace. Will it have long-lasting effects that further increase? Or will it speed up our reliance to agile working and technology-enabled remote working?
“What impact will this have on PropTech and FinTech? From human temperature sensors in large office buildings to software which allows end-to-end technology integration including electronic execution of documents, virtual inspections, and online auctions. What will this mean for Data Centres?
“The economic impact and effects on the commercial real estate market of COVID-19 are still largely unknown. It’s evidently impacting all businesses and overall confidence, however we expect property to recover relatively quickly due to the strong fundamentals and on-going demand for investment returns.
“We would like to thank all of Ray White Commercial Queensland’s clients for their continuing support. Every one of our clients’ needs are different, during this time more than ever, and we’ll always take a similarly personalised approach.”