An uncertain future for commercial real estate 

During Australia’s national peak of the Coronavirus pandemic, 4.3 million people (almost a third of our workforce) were working from home.* As a result, Sydney and Melbourne’s office vacancy rates doubled in the first half of the year.*

Unsurprisingly, the first six months of 2020 saw investment in commercial real estate tumble. Globally, direct commercial real estate investment fell 29% year-on-year to $321 billion. Travel restrictions also hindered international investors from carrying out due diligence on potential real estate investments across their borders.*

Even now that workers are starting to return to offices in many cities, there may not be a return to pre-Coronavirus occupancy levels. Already, some corporate staff surveys indicate around half their workforces want to continue working remotely – for at least some of the time.*

Some companies are redesigning their offices to create spaces more suited to socially-distant office meetings or collaborative projects, while others are downsizing and renting desks or rooms in a shared office space. This has always been a popular option for freelancers and self-employed people who want the freedom of self-employment, but also the community and connection that comes with a shared workplace.

Commercial property experts say we’re likely not to see the full impact on real estate investment until 2021.

Commercial property experts say we’re likely not to see the full impact on real estate investment until 2021.

Mortgage stress and property prices

As homeowners’ biggest debts and retail banks’ most important assets, mortgages have a major impact on economies. That’s why both governments and lenders across the globe have been working together to help alleviate mortgage stress during the downturn.

In August 2020, about 1.5 million Australian households were in mortgage stress.  Since then, the fortnightly JobKeeper payment has been reduced by $300 to $1,200, while the JobSeeker Coronavirus supplement dropped by $250 a fortnight. Both of these payment reductions have corresponded with the end of mortgage deferrals. In response, banks and statutory bodies are looking for ways to extend these mortgage breaks where possible.

Proposed government changes to existing laws may make it easier for Australians to refinance their home loans or take out a mortgage. However, there are concerns this could result in people borrowing more than they can afford. In this case, borrowers may be forced to sell their homes, increasing supply in the market and pushing down housing prices. 

Lower demand for rental properties

The property market that has been hit the hardest all around the globe is the rental housing market. In Australia, demand for rental properties is the lowest it has been for many years – particularly for apartments in Sydney and Melbourne. This is because job losses have been higher for younger people and those on lower incomes, who are more likely to rent. As people move out of their rental properties to share with friends or families, many investment property owners have been forced tolower their rent so they don’t end up with a vacant property.

Both long and short-term rental properties have been impacted by our closed borders. With few international students and migrants entering Australia, the properties they would usually rent are sitting idle. And without international and interstate tourists, many short-term accommodation providers have been stuck with vacancies as well. Some are shifting their properties to long-term rentals, which has contributed to the over supply of accommodation in some markets. On Airbnb, the amount of listings declined by around 20 per cent, or 40,000 properties, between February and May this year.

So what does this mean for investment property owners? It’s unlikely that rental prices and vacancy rates will recover until our national and interstate borders open up completely, and more people get back into the job market.

Changing fortunes

One area where the pandemic is having a positive impact on property prices is outside of major cities. Many workers have realised they can successfully work remotely – so they aren’t obliged to live in a large city to follow the work. Others are keen to leave crowded cities where it’s harder to socially distance. 

Anecdotal stories from Europe, the USA and Australia suggest more affluent people are looking to move from their urban environment to the country. While Coronavirus may be the catalyst, they may also want to enjoy fewer crowds, a laidback lifestyle and closer contact with nature that rural living offers. 

Regional property prices in Australia have been more stable than in capital cities, with all state and territories other than WA and NT experiencing an increase in property values over the past 12 months.* Regional homeowners and property investors may continue to see the value of their properties rise as even more Australians look to relocate for a simpler, safer lifestyle.