The commercial property winners and losers in 2020
Australia’s commercial property market was rocked by an unprecedented level of volatility in 2020, beginning with the bushfires in January and the emergence of the COVID-19 health crisis in March. However, the impacts of these challenges were not uniformly felt, with some commercial property sectors emerging more resilient than others.
Search volumes from both the ‘For Sale’ and ‘For Lease’ sections of realcommercial.com.au give an early indicator of demand in the market and provide meaningful insight into the shifting attitudes of prospective buyers and occupiers across various sectors and locations. Below we discuss the major trends that emerged from the data.
Commercial farming the standout performer
Commercial farming recorded the largest increase in both ‘For Sale’ and ‘For Lease’ search volumes in 2020. Unlike other asset classes, it was relatively unimpacted by lockdown measures, and was the only sector in which searches remained above 2019 levels during the March to April period when the economic impact of the pandemic first hit.
Victoria recorded the highest total ‘For Sale’ search volumes in 2020 for commercial farming listings, followed by New South Wales and Queensland. However, comparing search volumes in 2019 versus 2020, the Australian Capital Territory and Western Australia saw the largest year-on-year increases in ‘For Sale’ searches (up 97.4% and 70.9% respectively), with South Australia, NSW, Victoria and Queensland all just under 50% higher. Growth in ‘For Lease’ search volumes was again highest in the ACT, followed by Victoria and WA.
Several factors can account for the growing demand in Australia’s commercial farming sector, including an improvement in weather conditions and a lower cost of debt. The relative resilience of this asset class during the pandemic – people still need to eat – compared to other sectors is also a factor, driving the expectation that demand will remain strong over 2021.
Investor appetite for industrial property is growing
The industrial sector emerged relatively unscathed from the COVID-19 pandemic, benefiting from the acceleration of e-commerce and growth in food manufacturing. Despite falling below 2019 levels between March and April, search volumes were well up over the year.
While ‘For Sale’ search volumes were higher for all states, SA (up 33.1%) and WA (up 32.9%) saw the largest year-on-year increases. WA also recorded strong growth in ‘For Lease’ searches, supported by the resources sector, with NSW and Queensland also performing well. Although both ‘For Sale’ and ‘For Lease’ search volumes in Victoria were weak throughout most of 2020, pent-up demand during the state’s second lockdown saw volumes rise sharply in the fourth quarter.
Interest in industrial property is expected to remain strong over 2021, with the growing risk associated with other asset classes – particularly retail and office – likely to drive some investors to reweigh their portfolios towards a higher exposure of industrial.
Australia’s office market is a mixed bag
At the beginning of 2020 before COVID-19 hit, office assets in the Melbourne and Sydney CBDs were performing strongly, with rents rising and vacancy close to historic lows. However, the subsequent rise of social distancing and the greatest working from home experiment ever seen have driven a fundamental shift in how the role of the office is viewed.
Vacancy across Australia’s CBDs (with the exception of Canberra) has subsequently risen, with tough economic conditions and a reassessment of space requirements driving some occupiers to relinquish space. Despite uncertainty around the future of work, search volumes from realcommercial.com.au indicate offices will still play an important role in the way businesses operate.
WA and Queensland saw a modest rise in year-on-year ‘For Lease’ searches, supported by white collar jobs growth in the resources sector. In contrast, Victoria saw search volumes down 12.1%, with protracted lockdowns preventing inspections and uncertainty around a timeline for the return to the office. The ACT led the pack in ‘For Sale’ search volumes (up 25.1%) with resilience in public sector jobs bolstering confidence in Canberra’s office market while Victoria saw the weakest growth in ‘For Sale’ searches.
Retail showing signs of recovery after a tough year
The retail sector saw relatively weak year-on-year growth in ‘For Lease’ search volumes over 2020. Government-mandated lockdowns posed a serious challenge to many retailers, which necessitated rent reductions and increased vacancy risk. Retailers in Victoria were hardest hit, while Queensland and WA emerged relatively unscathed from the pandemic and saw ‘For Lease’ searches up 23.2% and 21.8% over the year respectively.
Retail ‘For Sale’ search volumes were also subdued, with the exception of the ACT where searches increased by an impressive 47.6%. While conditions for many retailers remain tough, the winding back of restrictions is improving trading conditions and will support the performance of these assets over 2021.
Land in hot demand with ACT leading the charge
‘For Sale’ search volumes of land saw a modest rise in all states, supported by the government’s HomeBuilder grant. Growth in search volumes was highest in the ACT (up 55.1% year-on-year), followed by WA at 18.3% growth. Growth was more subdued in Queensland and NSW, with the lowest rise seen in Victoria.