What did we learn about commercial property in 2020?
Updated: Jan 15, 2021
It’s the year that would never end, and yet it still feels like it’s gone past in the blink of an eye. 2020 was certainly a rollercoaster for commercial property, but there’s been plenty of positives and lessons that have emerged between the doom and gloom.
Here’s some of the key takeaways from a year in commercial property we won’t forget too soon.
Government support stops the bleeding
As the COVID-19 shutdowns saw jobs lost and thousands falling into financial strife, support quickly came in from the government. Both state and federal governments underpinned businesses and the economy through JobKeeper, JobSeeker, various business grants and the introduction of a commercial leasing code, all of which helped create a safety net for many commercial property owners and tenants.
A variety of incentives continue to flood through which promise greater flexibility in 2021, including a relaxation of lending laws from March 2021.
Landlords and tenants team up
It soon became in everyone's best interests to support tenants and work together through the hardships. Commercial property investors and tenants all felt some level of financial pain and became more willing to enter into rent relief negotiations, rather than risk a vacant premise or defaulted tenancy agreement.
The government supported these actions with measures to assist tenants, including rent reductions and a six-month moratorium on evictions of tenants who were financially struggling due to COVID-19 (we wrote more about this here)..
Fortunately, through negotiation and good will, many were able to reach mutually beneficial solutions and have come out with some confidence as we enter into the post-pandemic era. In many cases it has proven that with patience, understanding, frequent communication and mutual respect, all parties can achieve their goals and develop strong long-term relationships.
Property demand was shaken up
Who could've imagined that just about all workplaces would be vacated as everyone stayed home and transitioned to remote work? While office buildings and discretionary outlets (whether it be leisure, hospitality or retail) were hardest hit, some commercial property sectors boomed.
Investors were suddenly provided opportunities in properties catered to ‘essential’ spending, such as supermarkets and shopping centres with access to essential outlets. Low crude oil prices made petrol stations an appealing choice, while an increased focus on health shone a spotlight on convenience outlets providing groceries and pharmaceutical goods.
Data centres, storage facilities and industrial spaces also came out the strong winners and are all set to become the ‘new normal’ in commercial property demand. As more people worked from home, businesses required greater data storage to support the increased use of cloud-based technologies, social media and Internet of Things (IoT). Both retail and food businesses transitioned to online platforms, which created the need for more warehouse storage, logistics, and distribution spaces. With eCommerce continuing to thrive post-pandemic, these assets will certainly remain favourable in the future. Finally, the increased demand for Australian manufacturing, particularly the manufacturing and storage of pharmaceuticals, also required support from industrial properties (we wrote more about the commercial opportunities arising from COVID-19 here and here).
Premium properties continued to thrive
The COVID damage was kept to a minimum while premium properties continued to demand a high price, thanks to Australia’s efficient and uplifting pandemic response.
Australian premium properties continued to draw attention from local, national and international investors, with premium office spaces, petrol stations, childcare centres, major retail outlets, bank branches, housing sites and more all being snapped up during the pandemic.
The growing demand for premium commercial properties, alongside historic low interest rates, low supply and resilient economy, also saw an important but rare trend emerge – an increase of valuations, despite the decrease of rent and capitalisation rates.
Adelaide commercial property market boosted
The Adelaide commercial property market was a top performer, as South Australia quickly became a safe haven and ‘COVID free bubble’. The state experienced minimal damage in the market, and held up well despite the lockdowns, job cuts and market downfalls.
As Adelaide continues to be in high demand and investor confidence strengthens, a significant number of quality properties have sold in South Australia to local, interstate and offshore investors. These include:
· 620 Mersey Road, Osborne SA ($48.25 million)
· 16-26 Caribou Drive, Direk SA 5110 (sold for $63.05 million)
· 50 Flinders Street, Adelaide (sold for $175 million)
· 264 – 300 Wakefield Street, Adelaide (sold for $30 million)
As companies face the prospect of staff returning to the office, huge changes are occurring in workplaces which are set to continue in 2021. The focus is on preventing virus transmissions, upholding hygienic standards, improving the efficiency and sustainability of business operations and much more.
To achieve this we’ve been seeing rapid changes in office designs, increased use of automated facilities and IoT, and the implementation of cloud-based technologies to support a mix of office and remote working.
Prepare yourself for 2021
What have you learned in 2020? Great advice on your approach to commercial property has never been more important. Talk to an experienced property advisor and tenant representative about your way forward now.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property