The commercial property market of Australia is a powerhouse that has propelled the growth of myriad businesses. It has been the stronghold of the economy due to the thriving commercial sector, which needs suitable space to operate. However, the recent COVID-19 pandemic, which is predominantly a health crisis, has been threatening this sector because of its far-reaching consequences.
The rental income from commercial property has been affected by the shutdown, and social distancing norms have been put in place in various parts of the country. It is a period filled with uncertainty, and this is the reason why rental markets are getting impacted.
Naturally, investors eyeing the commercial real estate in Australia are feeling sceptical about making an investment. However, a significant part of the impact is being felt by the residential market while commercial real estate is still doing better in comparison. The rental downfall has not reached the entire length and breadth of the country, and thus, it is too soon to panic. Here is an update on the rental markets which have been most impacted by the coronavirus.
Sydney and Melbourne Will Be The Most Affected
The office rental market will witness a decline in the lease prices as the demand from tenants is going down in the famous cities. Most companies are advising their workforce to work from home in the current situation. Also, some of the cities are in lockdown due to rising cases, such as Victoria which has declared a state of disaster and NSW, which had earlier faced a similar shutdown.
The restrictions imposed on NSW resulted in a loss of $1.2 billion from the retail industry alone in the month of April. More than 310,800 businesses in the state applied for JobKeeper during the months of April and May. Small businesses are finding it challenging to stay afloat in the current circumstances. Consequently, the rental market has softened in the most prolific commercial centres of Australia and the ongoing crisis will not let the market recover for the next few months.
The property sales and movements of tenants are allowed during the shutdown and this has helped various non-discretionary and confident buyers to move ahead with their transactions. With private inspections and online auctions being allowed by the government, the demand for commercial property is now shifting online. Since Sydney and Melbourne had the highest rent across the country, these cities are the first to feel the impact of the COVID-19 pandemic.
Tourist Destinations Are Feeling The Heat
The Australian Treasurer recently warned about the sobering economy and indicated that the upcoming budget would comprise the largest-ever deficit borne by the country. A plethora of businesses operate from leased commercial properties, and the most affected amongst them are those related to the accommodation and hospitality sector.
The tourist hotspots thus have been bearing the brunt of closed international borders and negligible tourism. The eastern suburbs of Sydney have been the mainstay of travellers, and this region is now facing a huge shortage of customers.
The vacancy rates are going up in Queensland, which is highly dependent on tourism. Besides the sunshine state, other affected rental markets are the tourist destinations of Hobart, Brisbane, Darwin, Alice Springs and Adelaide.
In these regions, there is an oversupply of commercial properties while the demand is not as intense as it was earlier in the year. Naturally, the rents are falling, and the landlords are willing to shell out lucrative incentives to catch hold of new tenants.
Rental Listings Are Rising In Suburbs
The inner-city suburbs have been growing at a fast pace in the past few years. However, the coronavirus has put a brake on the development of these regions. Businesses which were planning to move here are now looking at the rural areas to stay safe from an economic upheaval. Also, with social distancing becoming the new norm, the occupancy in offices in the suburbs has reduced drastically.
Most of the workers are not willing to come back to work even after things get better. They have been enjoying increased family time and comfortable working schedules which have led to sentiment. Besides, many companies are planning to extend the remote working policies as the employees are generating a higher output from their homes.
As a result, the rental listings are rising in the highly sought-after suburbs of Parramatta, Brisbane inner city, Sydney inner west, and inner Perth. On the other hand, industrial property has been showing an upward trend as online shopping is becoming the most preferred mode of buying and selling of goods and services.
Thus the rental yield generated from warehouses has been offering an increased output in the past few months. The sector will continue to prosper in the present conditions as more and more businesses are going online. Thus the same regions are experiencing an increase in the rental rates for industrial properties as these are primarily located in the suburbs.
The Government Is Doing Its Bit
Although the economy is reeling under the massive damage that has resulted from the COVID-19 pandemic, the government has not refrained from providing the required relief. It announced a wage subsidy of $1500 per employee per fortnight, which has helped a lot of businesses to retain their employees and avoid mass layoffs.
Besides this, the state governments have also put forth tax relief measures to relieve the financial burden being faced by tenants and landlords of commercial properties. The NSW government is offering a land tax concession of up to 25% for 2020 for eligible landlords.
The government is also promoting renegotiations between the landlords and tenants to agree on a temporarily reduced rent amount. The renewed rent agreements will help both the tenants and landlords who are facing financial challenges in the current circumstances. The landlords can also ask their financiers to adjust the mortgage policies to avoid debts.
All of these supportive policies have helped in salvaging the situation. A similar commercial tenancy relief policy has been implemented by the Victoria government to reduce the financial hardship being faced by tenants and landlords across the state.
With the ongoing restrictions and changing economic scenario, it is difficult to term the current rental downfall as a downturn. Thus if you are looking for commercial real estate in Australia, then you should not lose hope. The strong foundation of the sector and the support provided by the government will help in regaining its position quickly.
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.
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