How Is Melbourne's Lockdown Affecting Commercial Real Estate?

How Is Melbourne's Lockdown Affecting Commercial Real Estate?

Coronavirus cases have been surging in Victoria, and the rising numbers have made the state premier take the drastic step of imposing a lockdown once again. The six-week-long shutdown began in the second week of July after 191 new cases were reported in a single day. Although the precautionary measures have been put in place to restrict the virus, it is suspected to affect the property market by lowering the confidence of the buyers.

However, the picture will become clearer in the coming weeks as experts will determine the impact of the restrictions. As of now Melbournians have been prohibited from moving out of their homes, except for shopping for essentials, care giving and exercise. Experts are hopeful that the lockdown will not affect commercial real estate in Melbourne negatively as the sector is well-insulated from downturns. It has been historically performing successfully and has been through a lockdown earlier.

Although small businesses have been affected, and the big players too are enduring declining sales, the real danger is a change in buyer’s sentiment. However, things are not as bad the recession of the 1990s when Melbourne was impacted significantly. Let us try to understand how things can change for the commercial property sector in Melbourne due to the prevailing conditions.

Office Properties Are Going To Be Affected

The work from home policy implemented by several businesses seems to have helped in improving the productivity of employees. Thus many companies are allowing their workforce to continue to work from home. It is also an advantageous cost-cutting measure for entities that are facing decreased sales due to the COVID-19 pandemic.

Also, several workers had not come back to the office set-up after the first lockdown was lifted. Thus the return of the employees appears to be challenging in the current conditions, and it will make an impact on the rental yield. However, since the projects which are in the pipeline will get delayed and will be withheld by the developers, the vacancy rate will not go down severely.

The city has been at the forefront of commercial activity in the country, and the strong economy will not let the sector go into recession. Also, the record low-interest rates have kept the buyers interested in making high-yielding investments in the metropolis. Therefore it is the right time to find a lucrative deal in the commercial real estate sector at the moment.  

Retail Will Have To Bear The Burden of Restrictions

Since Melbournians will only be stepping out to shop for essentials, it is evident that retail businesses will be hit and many small ones will have to close down. The shopping centres in the suburban areas, as well as restaurants and cafes, will be witnessing lesser foot-traffic.

However, shops selling essential supplies will be garnering huge profits as people have been stocking up for the shutdown. Also, the manufacturers of cleaning supplies have witnessed a jump in demand as people have become more cautious of sanitisation and personal hygiene due to the pandemic.

Many businesses have found new ways to stay afloat in the current conditions, such as restaurants providing takeaways and deliveries and selling groceries and liquor. Also, the Victoria Government announced the commercial tenancy relief package to help businesses emerge from the crisis with minimal damage. A lot of work is being done to uplift the small entities and alleviate their burden.

Federal Government’s Support Will Be Extended

The Newstart allowance, which was doubled when the pandemic surfaced in the country, will be brought down to $250 from $550 a fortnight starting from September. According to Federal Treasurer Josh Frydenberg, the support will be extended beyond December after the assessment of the job market. 

It has been estimated that half of all the jobkeeper recipients will be located in Victoria towards the end of 2020. It will help businesses in Melbourne to pay their employees in case they are facing losses. Banks are also providing the required aid through the four-month moratorium on repayments for loans.

Also, the Australian Banking Association has reassured that businesses which are still feeling the heat will be provided assistance through restricting the payment of instalments. 

Industrial Property Market Will Continue To Grow        

According to Australia Post, online shopping has grown by 80 per cent due to the COVID-19 restrictions and the need for social distancing. The boom in e-commerce has helped various businesses to survive the lockdown and fulfil the order requirements placed by the consumers online. Most of the people in Melbourne are staying away from shopping precincts and malls currently.

Thus several retail businesses are now moving into the online shopping space in addition to the existing e-commerce companies, which have been thriving in the present situation. The rise in online shopping is going to continue amidst the lockdown as it allows people to avoid going outside and stand in long queues.

Also, the comfort and convenience is a welcome change for consumers. Naturally, the demand for warehouses and industrial properties in Melbourne is going to soar in the coming months. It brings good news for the sector, which was lagging behind office and retail spaces for years.

Clearance Rates Will Witness A Dip

It is understandable that the physical presence of buyers will not be allowed in auctions taking place during the lockdown. Some of the auctions will be postponed while others will be conducted online. Various commercial real estate agents have successfully crossed over to the digital medium and are finding it comfortable to host online auctions.

Also, the earlier lockdown has prepared the buyers and sellers for the new way of property deals. Several properties have been sold online since the spread of the virus. However, the clearance rate has slightly dipped as compared to the past few years.

The viability of good properties is making buyers continue to bid for the A-grade properties located in premium locations across the city. However, the decreased clearance rates are due to the withdrawn properties that are making the numbers drop. Private sales are also helping in continuing the buying and selling, and these changes will consequently make an impact on the sector.

Conclusion

Although the lockdown will be affecting commercial real estate in Melbourne, it will not be able to shake the stable foundation of the sector which has sustained itself for years. The relief measures taken by the state and federal government will further ensure that businesses in the metropolis are least impacted by the pandemic. 

Author Info Sophie Barrett

Sophie Barrett is an experienced real estate marketing professional with a specialisation in commercial property market. She has a Masters degree in marketing from the esteemed Melbourne Business School and has several property management certificates to her credit. Her shrewd marketing policies and business acumen have led to the most rewarding property deals in the major capital cities of Melbourne, Sydney and Perth. She is a popular name in the real estate market and has been serving the industry for almost two decades now. CommercialProperty2Sell is proud to partner with her for some astute discussions and advice on the booming sector.