Real Estate Lessons Learnt in 2020-21
Real Estate Lessons Learnt in 2020-21
The resilience of the real estate market during the COVID-19 pandemic has been one of the biggest surprises of 2020-21. At the heart of the pandemic, millions of tenancy agreements were in negotiation with rents forgone, reduced or in dispute. This put real estate managers in a tight spot as they are paid on a percentage of rent and their revenue was falling. Real estate managers had to deal with distressed tenants, cash-strapped owners, new commonwealth government codes, state regulations and the complexities of a job keeper.
Every sector of the property industry, from agents to builders to consultants, investors and financiers, faced and generally overcame, a unique set of challenges in 2020-21. With 2022, just around the corner, we would need to reflect on the lessons learnt the past eighteen months and the way forward to ensure a better 2022.
1. All REITs are not the same
Technology is a major driver of change in real estate investment trust performance from retail and office to logistics, housing, data centres and health. Technology is changing the way real estate is used. REITs are no longer the same particularly when it comes to regular distributions.
Even though shoppers are returning, and the stock prices of malls have risen from their COVID-19 lows, most analysts see further challenges to rental levels and long-term repositioning.
2. Vulnerable CBDs
The vulnerability of the Central business district is another 2020 real estate surprise. The COVID-19 plight of the CBDs from eerily quiet, billion-dollar office towers to bankrupt small bars cannot be overlooked. The office towers emptied, in what was a successful short-term experiment in working from home, and life in the CBDs ebbed away.
For every business leader who demands a return to the city office, another endorses a hybrid operation to allow Online Casinos AUD for remote working. In the meantime, as tenants shed unwanted office space, the vacancy rates are rising.
According to the managing partner of Taronga Ventures, Jonathan Hannam, the pandemic has stirred interest in real estate tech. In the first half of the year, the focus was on technology that delivered health and wellness solutions, construction safety and process digitalisation. Recently, however, the focus has shifted to energy, sustainability and creation of new streams of income, especially in retail distribution.
For the construction industry, the challenge was how to stay on-site, keep building and meet COVID-19 guidelines. Robert Pizzarotti a builder, pioneered a flexible way of working, asking its engineers, contracts administrators, design and project managers to use technology to work off-site every second day.
Nevertheless, the pipeline of new commercial work for 2021 is contracting. Alison Mirams, a chief executive officer, hopes clients don’t respond by simply squeezing margins but they continue to focus on the health of construction workers, including through the adoption of a five-day working week, and she hopes that the “magnificent” (but now challenged) COVID-19 collaboration between contractors, industry bodies, the Master Builders Association and the unions can continue.
3. Boom in regional rents:
This was one of the biggest surprise as big financial institutions predicted a huge slump in residential property prices. But as the search for yield intensifies, gross rental returns of 4-5 per cent on investment properties are attractive, as are some hybrids.
The solid improvement in mortgage availability and pricing, coupled with the turn in sentiment, the government handouts and a COVID-driven move out of smaller homes, has worked the trick. As usual, housing is not uniform. The reduction in immigration and foreign student numbers have driven up the vacancy and forced down the rents for many inner-city apartments.
These two trends have also driven up regional prices, with pent-up discretionary spending boosting resort prices and affordability, along with the increased ability to work remotely, driving demand in the stronger regional centres.
In 2021, Simon Pressley, the founder of Propertyology, a buyers’ advocate and one of the first to tip the strong price surge in Hobart, expects the rise in regional centre rents, up to $5000 a year in some centres, will be the most important story for Australian real estate.
Keck, unlike most analyst, does not think COVID-19 will have a lasting effect on real estate. Online retailing, working remotely and the trend of moving to regional centres were all happening before COVID-19 and will continue in its aftermath. The pre-COVID-19 problems of underemployment, stagnant wages and low productivity will re-emerge, exacerbated by the pandemic debt burden. But that’s for the future.
All the best for the remainder of 2021
Reference:
- The big property surprise of 2020
by Robert Harley
- Behind real estate’s surprise 2020 boom and what comes next
By Daria Solovieva
- Without their key ingredient, can Australia’s CBDs survive?
by Robert Harley
- Why the housing bears are wrong
by Christopher Joye