As predicted by Nerida Conisbee, REA Group's Chief Economist and one of Australia's leading property market experts.
Employment activity, vaccines being finalised, cheap capital and excess liquidity bode well for a solid 2021 for commercial property. Read on for the potential predictions, as noted in RealCommercial:
1. Focus on CBDs
Australian CBDs were hit hard during COVID-19 lockdowns, as office workers remained locked out of city workplaces and international students vacated university hubs. In Melbourne, this was exacerbated by longer running restrictions, as well as a greater reliance on students. Across all CBD property types, including office, retail and residential, there have been rises in vacancy rates in 2020. Better conditions can be expected in 2021 as office workers, students and visitors slowly return.
2. Commercial Property Investment
There is currently no shortage of money, which is why, despite rising vacancies, we are not seeing a corresponding drop in values. Interest rates are expected to remain low for some time and the ability to borrow will continue to be eased. Yields will drop off the back of rental declines or stagnation, but even with this, there will continue to be a decent gap between this and government bond rates, primarily because these have also fallen.
While local buyers will dominate, offshore groups are also likely to be particularly active in 2021. This year we saw a lot of activity from Europe with Chinese investment ramping up towards the end of the year. Next year, Australia will continue to be attractive given how minimally impacted we have been by the pandemic compared to the rest of the world.
3. Life sciences and medical-related property
The arrival of a pandemic has led to huge investment in research and development in the pharmaceutical sector. For property, life sciences refers to the pharmaceuticals, biotech and medical technology industries. Although a tiny sector compared to office, residential, retail and industrial, it is growing and COVID-19 has accelerated this. Globally, $10 billion of life sciences property changed hands in 2020 and this is likely to be higher in 2021.
4. Industrial & Farming
Both industrial and commercial farming were popular prior to the pandemic and interest accelerated during 2020. The industrial sector has done well out of lockdowns and many of the habits we developed during the pandemic, such as increased online shopping, are likely to stay.
5. Shopping Centres
Up to a third of shopping centres in the US are expected to close in coming years, as retailers, both small stores and large anchor tenants, continue to file for bankruptcy amid the health crisis. COVID-19 has also had a devastating impact on Australia’s retail sector, which has now flowed through to the lowest rental returns for shopping centres ever recorded. For shopping centre owners it will be hard work to fill retail vacancies in 2021 and they may have to get used to lower returns.
6. Office Design
Many Australians are now returning to the office but it is unlikely the design of most offices will remain the same due to social distancing requirements. More meeting rooms, well-equipped with video functionality, are necessary for distributed teams and although social distancing measures are no longer so strict, there is likely to be an expansion of workspace ratios in many organisations.
Suburban office spaces could also see a boost in interest in 2021 as more people prefer to stay closer to home.
7. Regional Commercial Real Estate
In the June quarter of this year, the Australian Bureau of Statistics reported the biggest movement out of capital cities and into regional areas ever recorded. It is likely that this will have continued for the rest of the year and this will flow on to increasing demand for commercial property in regional areas.
8. Build-to-Rent Growth
Interest in build-to-rent picked up during COVID-19, primarily because big rental drops, particularly in Melbourne and Sydney CBDs, saw investors withdraw from buying new apartments.
While more development sites will switch to build-to-rent in 2021, it is likely that building approvals for units will recover. With a vaccine, international students can return and migration can start up again. This means more demand for housing.
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