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With working conditions severely altered due to the impact of the COVID-19 outbreak, how will the commercial real estate industry move forward post-pandemic?
The pandemic has led to stringent border controls, which began in March and went on for several months, changing the course of several industries, as well as the needs of businesses across states.
According to Kymbal Dunne, partner and joint national head of private office at Knight Frank, among the major changes in commercial property brought about by COVID are a reduced need for office space, fewer international buyers and overall shifting needs.
Moving forward, this could impact not just trends in business, but also trends in the property market, Mr Dunne predicted.
1. Reduced need for office space
There has been a significant reduction in the need for office space as businesses transition to a work-from-home setup in order to abide by safety and lockdown measures, Mr Dunne noted.
While restrictions have eased in most parts of the country, more and more businesses are looking at the long-term solution to space requirements, with full consideration of the widespread impact of the pandemic, which is expected to last for years to come.
“Working from home quickly became our ‘new normal’ when restrictions were imposed early on in the pandemic. Yes, some have returned to working at the office, but many have not. Others have settled into a hybrid pattern of working, with some days at the office and others at home.
“This has led many business owners to question how much office space they need and if there is the potential to reduce their footprint and, in turn, their costs. Then, there are other business owners who are questioning the need for office space at all, because they’ve proven that they can operate effectively with their team working from home.
“What do you need office space for if your people aren’t able to use it or don’t need to use it?” Mr Dunne highlighted.
Even though more people are returning to work, occupancy levels are currently below 50 per cent, compared with around 96 per cent pre-COVID-19. Ultimately, many people still choose to work from home and only go into the office when they need to, Mr Dunne said.
The impending end of the JobKeeper subsidy in late March 2021, coupled with the end of rent support for tenants on 31 December 2020, also means that tenants with leases due to expire are weighing their options, he added.
“Let’s face it, JobKeeper has been keeping many businesses afloat. Without it, they would have gone under months ago. They’re effectively ‘zombie’ businesses. I think, unfortunately, we’ll see a lot of vacant offices and shopfronts when JobKeeper ends, as we’ve prioritised the pandemic response, though the impact of the recession continues to play out in the background.”
2. Fewer international buyers
Commercial agents working with international clients have also felt the impact of COVID-19.
According to Mr Dunne, while people still want to transact, travel restrictions and quarantine requirements are posing problems. Since the implementation of stricter border controls, looking at properties overseas has become an incredibly time-consuming task.
“First, they have to apply to enter Australia and approval can take several weeks. Then they have to go into hotel quarantine for two weeks. Then there’s the issue of our internal border restrictions. They might be looking at properties in several capital cities. While the majority of our internal borders are open at the moment, we’ve seen how quickly the Premiers are prepared to slam them back down again at the slightest whiff of an outbreak.
“Together, all of this makes international transactions far more difficult. What used to be a quick trip in and out of Australia is now potentially a six-to-eight-week exercise, which is, quite frankly, untenable.”
Fortunately, many projects involving international clients have been put on hold, avoiding an oversupply in commercial property.
“Really, the only way we can move forward is if the international client has a partner based here in Australia that can do all the legwork for them. But even in these circumstances, things are still a lot slower and more tentative than they’ve been in the past.”
3. Changing needs
Still, despite the impact of COVID-19 across the commercial property market, which is likely to be felt for the years to come, Mr Dunne remains optimistic as businesses continue to display resilience amid uncertainties.
According to him, businesses are pivoting and rethinking what they’re offering to ensure they remain viable and relevant to their clients.
“Things have certainly changed and, in so many ways, will never return to what they were, but businesses willing to embrace change and the opportunities that come with it will not only survive, but prosper.
“Likewise, the commercial market needs to adapt to meet the changing needs of businesses. I believe we can expect to see far more lease flexibility in the future,” he concluded.
- duplicate, see Commercial Real Estate
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.