Industrial property demand a shining light in COVID times

Industrial properties have enjoyed strong demand during COVID-19.
Industrial properties have enjoyed strong demand during COVID-19.

An industrial property-led resurgence has shielded the Australian commercial market from the worst of the COVID-19 recession, according to one of Australia’s leading economists.

While some commercial property asset classes – in particular offices and retail – have endured significant headwinds throughout the pandemic, REA Group chief economist Nerida Conisbee says industrial has been a shining light during a challenging period for the economy.

The surge in industrial property activity has been driven in large part by investors seeking assets that can be used for warehousing, distribution and logistics, due to the rapid acceleration of e-commerce as more people shop from home.

Industrial/warehouse search activity on in October was up 27.2% year on year – the largest increase of any asset class.

“Industrial property has been a stellar performer for many years now and has become even more popular during COVID-19, driven primarily by an acceleration of online shopping,” Conisbee says.

“Enquiry levels on are well up on last year.”

Other property types have also been keenly sought due to demand for the services they play host to, led by medical/consulting assets with a 19% year on year increase in October, commercial farming operations at 12.6% and large format retailing at 11.4%,

“All of these sectors of the economy are performing well, which has flowed on to property,” Conisbee says.

Conisbee says that the impact of the global recession on commercial property caused by the coronavirus pandemic appears to have been minimised locally, though investors and landlords may need to prepare to reduced returns as the economy continues its recovery.

“When compared to previous recessions, it does look like commercial property values won’t be as impacted by this COVID-19 driven recession,” she says.

“Despite this outlook, many owners will need to get used to lower rental returns in the short to medium term. Construction levels will also be impacted, particularly in the office and retail sectors.”

“The big problem for the economy right now isn’t finance, it is productivity with most people not working in the same way that they were prior to COVID-19. This has led to widespread job losses and also shifted how we work. The nature of this recession has big implications for the performance of commercial property.”

While industrial, medical and essential services have enjoyed strong growth during COVID, other assets have been impacted significantly, with Conisbee pointing to hotels/leisure, office, retail and development sites as among the hardest hit.