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Why suburban office is offering huge post-covid opportunities

Categories: Commercial, Investments, Office

While CBD office assets collect much of the spotlight in commercial property office market reports, there’s an exciting sub-sector of the office property market that is offering huge rewards for those willing to look. And that is the market for suburban office assets.

While CBD office assets collect much of the spotlight in commercial property office market reports, there’s an exciting sub-sector of the office property market that is offering huge rewards for those willing to look. And that is the market for suburban office assets.

In post-pandemic Australia, consumer demand for high quality commercial assets has never been higher. And it’s come as a surprise to many, because during COVID-19 there was so much uncertainty in the market.

No one knew for sure which asset class would remain relevant and which sectors would take a hit once the dust from COVID-19 settled. The commercial property market is now painting a very clear picture of what lies ahead for some commercial real estate sectors, and in particular shows which asset classes will actually be better off as a result of COVID-19 (for investors). Suburban office is one of those asset classes.

If you’re a commercial real estate investor looking for somewhere to place your funds in 2021, this post is for you.

The state of the economy in 2021 (in a nutshell)

The Australian government has started to spend – lavishly.

The 2021 federal budget outlined plans to inject over $15 billion into roads, rail and infrastructure across the country in a bid to turbocharge the Australian economy, and the government is doing this to bolster consumer confidence and put dollars into consumer’s pockets (so they’ll go out and spend).

Not only is the government intervening to ramp up the economy, we’ve got iron ore prices at $204 per tonne, we’ve got historically low interest rates, and business confidence is at an all-time high.

There are even more jobs today than there were pre-COVID. As at April 2021, 637,900 more people are employed than there were the same time last year.

The state of the commercial property market in 2021

melbourne investment covid-19

We’re seeing many economic tailwinds, and as a result commercial property in Australia is seeing strong investor demand.

Institutional investors are loaded with funds and need somewhere to put them to ensure a happy investor base. Individual investors have the same problem. It’s just a matter of knowing where to look for that next high-yielding commercial property investment.

We can divide the commercial property landscape in Australia into three distinct sectors.

The retail sector is actually going incredibly well. We’ve had an online retail boom since 2020, the result of many consumers turning to eCommerce to fulfil their consumer needs, and those retailers who’ve conformed to online shopping trends have in turn seen huge results.

“As at November 30 [2020], online shopping had grown more than 45% year on year in Australia – more than double 2019’s eCommerce uplift of 17.5%.” – Australia Post

The industrial sector is gaining real positivity from investors, with logistics companies in high demand to satisfy a growing online consumer base.

And meanwhile, there’s a real softening happening in the office market.

There’s a concern that employees have a greater propensity to work from home these days and thus there is a reduced need for employers to seek out (or continue occupying) office space.

No one can be certain whether this is actually the case now or whether it will be the case in the future. But investors are over responding to this risk; the risk that the necessity of office spaces for businesses is reducing.

This has created an amazing opportunity right now to find suburban office space, especially those suburban office assets that have an enormous relevance to tenants and is underpinned by a secure lease profile.

What is the suburban office market?

suburban office market

Simply put, suburban office is office space situated in a suburban district.

Suburban office is in stark contrast to CBD office, which of course are located in the heart of a city or precinct’s downtown or business district. While assets may see a higher price tag in CBD areas and also have a range of amenity nearby, they miss out on some of the perks of suburban office markets.

Suburban offices are close to homes, they’re easily accessible, and usually have a solid amount of parking. And given they’re in neighbourhood areas (or at least very close to), they allow clients and customers a short drive.

As we mentioned earlier on, there has been a softening in the office market due to investors over reacting to the impact that COVID-19 has seemingly had on employers. Suburban office markets naturally adapt to these new needs of employers, employees, and even their clients and consumers.

While there’s no certainty that office spaces will become less relevant or greatly impacted by coronavirus in the future, suburban office premises are remaining highly relevant for commercial tenants in comparison to office assets with large floor plates or situated in multi-story buildings.

Many corporations and larger businesses are even sending their employees to smaller premises in suburban precincts to work. As a result, suburban office has even become a target for institutional investors.

Which suburban office market should I invest in?

suburban office market

We’re seeing Queensland explode with opportunities in the suburban office sector. Queensland’s economy bounced back when the state kicked COVID-19, and Brisbane and its surrounding areas resumed a state of pre-pandemic performance before any other state.

Queensland’s housing market is leading the country, and the Australian Bureau of Statistics has shown that Queensland is ahead of the nation in both population growth and jobs growth. This bodes well for suburban office markets within Queensland, as a growing population and explosive residential property market means even higher relevance is placed on suburban office assets by active white-collar businesses.

While many investors are looking to the popularity of industrial assets for their next commercial property investment, the suburban office market holds incredible opportunities for those investors who are willing to look. It’s not a well kept secret… It’s a “wealth” kept secret.

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