What COVID-19 means for commercial property and businesses

Australia’s commercial property owners and tenants face uncertain times as they come to grips with the impact of the coronavirus.

So what does COVID-19 mean for commercial property and business in the coming weeks and months?

REA Group Executive Manager Economic Research, Cameron Kusher, says there are some key things that the market will see as the virus deepens.

TWO-PACED MARKET

Kusher says while some commercial property assets classes and businesses will face challenges, others are already seeing a surge in interest.

“COVID-19 means – for business – a lot of challenges really. We’re seeing some businesses really thrive. The demand for medical is very strong, we’ve seen the ‘panic buying’ out in the supermarkets,” he says.

“But then we’ve had things like gyms, restaurants, cafes, bars and pubs have effectively had to shut down completely.”

LESS COMMERCIAL LISTINGS

While any impact on commercial property will likely emerge more slowly than in the residential market, Kusher says the number of listings will almost certainly fall.

“Commercial listings are a bit slower to move than something like residential listings, but I would expect that as lockdowns become tighter and tighter we’ll see fewer and fewer properties coming up listed for sale,” he says.

RENT MORATORIUM TO ASSIST BUSINESSES

The moratorium announced on commercial property evictions to safeguard tenants unable to pay rent during the COVID-19 crisis provides hope that small business owners will be able to weather the downturn.

But Kusher says that while people can’t continue to afford rent, “landlords are going to suffer through this period as well” and the retail industry faces an uphill battle once the recovery begins.

“For small and medium businesses there’s a lot of stimulus in place and a lot of encouragement for lenders to continue to lend to these businesses. We are seeing though that a lot of businesses are standing down staff over the next period. They do know that once the recovery starts they’re going to need those staff back but there’s just not enough work for them at the moment. That’s going to be the big challenge for retail coming out of COVID-19.”

WHAT HAPPENS NEXT?

Higher vacancy rates and lower rents are two of the most likely long-term outcomes once the recovery begins, Kusher says, with many businesses forced to shut permanently.

“In terms of rents in the commercial sector, by and large they’re going to be coming down over the next few years, because some businesses won’t actually be able to recover from this,” he says.

“The opportunity is what happens when the market rebounds.  Some businesses will take their business more online than bricks and mortar retail, and that’s probably the opportunity going forward in the commercial space.”