Four takeaways from federal budget 2021 for commercial property
Last year COVID-19 pushed Australia into recession for the first time in nearly thirty years. In their second pandemic budget, the federal government’s focus has been on infrastructure spending and jobs growth.
While residential housing was a key focus of the budget, less was explicitly mentioned about commercial property. However, as the places where Australians do business, many of the announcements in the 2021-22 budget will impact the commercial property sector, both directly and indirectly.
1. Childcare funding will boost investor confidence
One sector that looks set to benefit from the budget is childcare. Childcare centres proved relatively recession proof last year and were one of the only asset classes to see yields compress in 2020. The resilience of this sector during the pandemic drove increased demand for childcare, with investors reweighting their portfolios away from increasingly risky assets such as office and retail.
The announcement in the 2021-22 federal budget of $1.7 billion in extra funding to support families with more than one child attending childcare, as well as the removal of the $10,560 subsidy cap for high income earning families, are expected to drive growth in demand for childcare places. This will further support the performance of childcare assets.
2. Support for commercial farming
Commercial farming is another asset class expected to benefit from the budget, with the announcement of numerous measures to support the agricultural sector. New funding initiatives include a $3.5 billion National Water Grid Fund to support drought resistance, $196.9 million for the National Soil Strategy, $15 million to grow agriculture exports, and further funding to help farmers grow their skilled workforces. Additional funding will also go towards improving biosecurity and improving farm productivity and resilience.
3. Very little for hotels and tourism
One key assumption made in the budget was that international travel is predicted to remain low until mid-2022, from which time only a gradual increase is expected. The return of international students is also assumed to be slow, with small, phased programs commencing at the end of 2021. Support measures for the tourism sector include 800,000 half price airfares (over 660,000 of which are sold) and an additional $274.6 million for some businesses impacted by closed borders.
Despite these measures, there are differences in spending behaviour between domestic and international tourists, and the prolonged absence of inbound tourism is likely to prove challenging for many businesses. International tourists are significantly more likely to stay in central business districts than domestic tourists, for example, which for hotels in inner-city areas, is proving challenging.
Some of these hotels have adapted to the loss of tourists by offering longer term lease options, competing with traditional apartments with room prices on par with rents. The expectation that inbound tourist numbers are likely to remain low for several years could drive more hotels to do likewise.
4. Infrastructure spending to boost industrial sector
A strong focus on infrastructure spending could prove beneficial to the warehouse and logistics sector. For example, additional funding to support the National Freight and Supply Chain Strategy, including $2 billion to deliver a new Intermodal Freight Terminal in Melbourne, as well as upgrades to road networks across Australia, could increase the value of industrial assets within these improved logistics networks.
Another initiative which could have positive implications for industrial over the longer term is the halving of the tax rate on income earned from patents developed in Australia in the medical and biotech sectors. This should help to make Australia a more competitive place to undertake research, development and medical manufacturing.
A number of other initiatives outlined in the 2021-22 budget could also have a positive impact on the commercial property sector down the track. An additional $8 million as part of the government’s Shop Local campaign will support the retail sector, while initiatives for small businesses and the Modern Manufacturing Strategy could support office and warehouse.