COVID-19 has caused the biggest economic disruption since the Global Financial Crisis. So, what’s happening in the property market? And is commercial property still a good investment in 2020?
Commercial property investors have a lot to be confused about in 2020. COVID-19 is creating more questions than answers, particularly when it comes to, “What’s the outlook for commercial real estate in 2020?”
Meanwhile, stocks are riding rollercoasters, deposit rates are touching the ground, and property has many investors wondering what’s in store for the next few years.
Here, we break down the state of affairs for commercial property in 2020, and see what impacts COVID-19 has had in the property market’s three major asset classes: Industrial property, office property and retail property.
Opportunities for the industrial property sector
Many industrial property investments that rely on mining are currently tracking okay. We’re hearing that despite the pandemic, mining firms are still in need of equipment maintenance, materials and yellow goods, like earthmoving equipment.
How long will this last? Hard to say.
There has no doubt been a huge decline in demand from our major trading partner, but China tells us they’re slowly returning to work. Regular demand for Australian commodities should hopefully return, too.
Logistics and distribution businesses are seeing a huge spike in demand, as the need to restock shelves and satisfy consumer demand is more important than ever.
Manufacturing in Australia also has a chance to make a comeback during the COVID-19 disruption.
Australia’s manufacturing culture has been in decline since companies have looked abroad for cheaper manufacturing sources. But this could be a time for domestic manufacturers to take up more market share while their overseas rivals are self-isolating.
Office property sector is still operating; just not in the office
Speculators think there will be a reduced need for office space once the pandemic is over. Employers could realise that remote work works, employees can have their own home offices and a small investment in Microsoft Teams and Zoom are all that’s needed to have a fully functional team.
In fairness, this is tough to forecast.
Many businesses need the group collaboration while others simply thrive off it (for me and our team at Properties & Pathways, we get our mojo from group brainstorming, so can’t wait to get back in the office – plus, the coffee at my house is terrible).
Essential businesses in the office space, such as Centrelink and other government agencies, have lines out the door during this crisis. There’s no need to shut the lights off for these organisations.
For now, the good news for office landlords is that many tenants in the corporate world can operate remote. This means business can continue to tick over despite being unable to enter their premises.
Retail tenants are becoming innovative against a new enemy
First, Amazon. Now, COVID-19.
Traditional retail players are used to doing it tough. But this battle is admittedly against a formidable enemy. The live list of stores having closed their doors because of the pandemic is not only serious, but incredibly sad.
Key for these retailers will be to merely hold on while the country rides this out. And that’s the good news for retailers. Unlike their ongoing battle with online retail, COVID-19 is a temporary fight.
If they can stay upright, there could be a surge of spending from new stimulus measures. Many customers still have a job, but won’t be tempted by much discretionary spending until they’re let out of their homes.
Retail businesses need a reprieve from landlords to help them tick over. This may mean reduced or paused rent, while interest repayments are capitalised for landlords.
Essential stores selling non-discretionary products (like supermarkets) are doing so well that some chains are advertising for up to 20,000 new staff. Some homewares and home entertainment stores have seen foot traffic from those improving their self-isolation environment.
Meanwhile, proactive retailers are raising capital to gain strength.
Not since the online retail boom have we seen this much initiative from bricks and mortar stores.
Shopping centres first gained ground over online stores by pushing experiential retail and food outlets on visitors – two shopping benefits not found on Amazon. And now, stores are fighting off the coronavirus spread with home delivery, takeaway options and ecommerce.
Is Australia still a good investment for foreign investors?
Our country’s borders are closed to foreign nationals. But not only that, the government announced recent changes to its foreign investment framework.
As of March 30, 2020, “all proposed foreign investments into Australia subject to the Foreign Acquisitions and Takeovers Act 1975 will require approval.”
This makes it far tougher for foreign nationals to invest in Australia. But it won’t last forever.
Offshore investors take a long-term view of the market. Their biggest question will be, how much quicker can Australia’s property market bounce back than other countries?
This is why Australia will still be viewed as a popular investment destination for international investors, thanks to the strength of our health system, transparent real estate market and history of economic stability.
Good relationships between tenants and landlords is more important than ever
For those holding existing commercial assets, the time to commence open dialogue with tenants is now. We’ve stood by it for years: Maintaining relationships with tenants is critical for successful commercial property investment.
At Properties & Pathways, we admit we put our investors first. This means ensuring their existing investment with us is safe and will continue to provide cash flow into the future. But to do so, we work with our tenants. We need to know their business will still be around long after COVID-19 is gone.
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