Commercial property update: Which sectors are faring best?

With Australia’s commercial property recovery now in full swing as COVID-19 restrictions improve, the challenges facing different sectors are becoming clearer.

In her latest commercial property update REA Group chief economist Nerida Conisbee says there are already very good signs for the market, based on realcommercial.com.au search data.

INVESTORS ARE SEEKING OPPORTUNITIES

While commercial property search activity dipped dramatically during the early stages of the coronavirus pandemic, Conisbee says things have already returned to normal.

“Property search on Realcommercial is now back to pre-COVID-19 levels,” she says.

LIMITED SIGNS OF DISTRESS

Fears that struggling landlords and tenants would lead to a rash of property listings have not materialised.

Conisbee says landlords have so far proven resilient in being able to maintain property ownership.

“The best news is that we are seeing limited signs of distress on Realcommercial,” she says.

“People aren’t being forced to sell at present, despite some of the most challenging conditions commercial property owners have gone through. Provided this continues, it will lead to far more stable conditions going forward.”

The student accommodation sector is being impacted.

CLOSED BORDERS TO HAVE LASTING IMPACT

The headwinds aren’t over for many sectors, and in particular those that rely on international travel, Conisbee says.

“The big one is, of course hotels, who will not be able to get the same level of international tourism prior to COVID-19 lockdowns. Domestic tourism, however, should start to pick up from this point onwards.”

“The other sector that will be challenged as a result of border shutdowns is the international education sector. This impacts the office sector to a limited extent, however it does impact the new development sector far more extensively.”

“Many foreign students won’t be returning anytime soon  and as a result this will limit the amount of new development, particularly around Australian universities.”

LEASING MARKETS TO BEAR BRUNT…BUT GOOD NEWS FOR TENANTS

Conisbee expects the biggest impact to be felt in the office and retail leasing markets.

“For the office market, many people won’t return from working from home, and as a result we will see renegotiation of office leases over the next few months.”

“For shopping centres the challenge is an acceleration of people shopping online.”

“We are also seeing retail tenants be far more aggressive in negotiating lease terms.”