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Smart agents will be well served to understand the dynamics that are seeing changed investor appetite towards commercial transactions in the COVID-19-impacted property market, the director of Real Estate Business has said.
Speaking on the most recent episode of What’s Making Headlines, hosts Phil Tarrant and Tom Panos reflected on the investment decisions people are currently making as they move away from the volatility of the sharemarket and the paltry returns on offer from term deposits.
One of those options coming to the fore at the present time is a tendency towards commercial real estate.
According to Real Estate Business’ Phil Tarrant, “Smart agents right now are really understanding the dynamics that are going to change investor appetite towards commercial lending or commercial buying.”
It begged Mr Tarrant to consider the question: Should you be investing in office real estate? Or industrial logistics centres? Or even service stations?
The two real estate heavyweights reflected on the recent words of Steve Dick, a director at Raine & Horne Commercial Newcastle.
In an opinion piece for REB, Mr Dick had commented on the knock-on effects of COVID-19 on the commercial property landscape moving forward and identified three major trends as shaping the sector: an impact on corporate travel, the increasing popularity of working from home, and the pick-up of online shopping and the need for new warehousing options.
Agreeing with Mr Dick’s sentiments, Mr Tarrant commented on how “the changing habits of Australians, how they live, how they work, how they engage with the activities they used to pre-COVID-19” will definitely have a flow-on impact to commercial properties and commercial activity.
Mr Panos also weighed in, commenting that Mr Dick had “nailed it” in his analysis.
One thing that’s for sure, according to the real estate trainer, is that “the city’s changed”.
“Walking through offices, you can see that there are less people,” he observed.
From the coach’s perspective, the real question is: “Are these people coming back to their offices?”
“Well, if you’d talk to the most senior people in the organisations, they’re actually saying yes they will be, but not at the level that they were.”
He observed that a number of CFOs doing negotiations with landlord and buyer’s agents to cut new deals, they’ve realized they may not need five floors, they may be able to get away with two.
He also pointed out an increased need for warehouses to hold stock as online shopping ramps up, as well as noting more investor demand for “essential” service providers – such as service stations.
“We’ve seen them open, these servos that have got a Woolies or Coles attached to them,” he flagged.
“You’re getting 6 per cent net return and you’re borrowing money at 2.5 percent.”
Continuing, Mr Panos acknowledged that on certain properties, the cost is going to be $200,000 a year in interest payments.
“But your rental income is going to be $450,000 – it’s still attractive.”