It has been a mixed year for a wide variety of property types across the diverse commercial property landscape in Australia, but where do things go from here?
The lockdowns and restrictions introduced by the federal government in 2020 caused an unprecedented level of economic disruption and resulted in once heavily populated CBDs turning into ghost towns.
Incentives for office leasing in the major CBD markets are now at or nearing their peaks, following the reopening of Sydney and Melbourne after significant citywide lockdowns in the second half of 2021.
Meanwhile, the breakneck industrial sector momentum shows no sign of slowing after stay-at-home shopping during the pandemic skyrocketed warehouse values with a little sign of a slowdown as major deals continue to flow.
Loosening Covid-19 restrictions helped retail sales bounce 10.1 per cent above pre-pandemic levels with customer traffic at shopping centres across the country now nearing where it was in 2019.
Shopping centres, student accommodation and hotels are now expected to benefit from high vaccination rates, increased mobility and the reopening of international borders.
Liquidity is returning to these sectors and a more diverse range of capital sources is expected to seek out counter-cyclical opportunities in 2022.
To learn more, The Urban Developer has turned to some of Australia’s leading property experts for their thoughts on the year ahead.
Head of Development
“Centuria has been an early mover in emerging markets that are now coming to the fore, including industrial and healthcare.
“We believe demand for prime-grade assets in these sectors will continue in 2022, with current supply shortages driving development.
“Additionally, with a federal election on the horizon, it will be interesting to see how policymakers address two of the biggest challenges in the development sector—that is supply chain material constraints and skilled labour shortages. Easing of border restrictions will hopefully see more flexibility with skilled labour moving throughout the country.”
Head of Research
“Covid-19 impacted real estate sectors will see improved investor sentiment, while the evolution of the digital economy and changing demographics support the real estate alternatives investment thesis.
“Healthcare-related assets are in strong demand for their exposure to a growth sector of the economy and low volatility of returns. We believe that all institutional investment will be viewed through an ESG lens.
“ESG factors are becoming more significant in the real estate sector as they quantify the sustainability of non-financial impacts of investments and are viewed to have a positive influence on long-term return and risk profiles.”
Director – Sales Marketing
“The pandemic taught us a lot of things about consumer behaviour and that if you cover the key fundamentals they will be there to support you.
“Regardless if you are building an office tower, a residential development and/or a retirement resort, if the product is outstanding and ticks all the boxes—location, views, amenity, level of finish, technology—the market will support it.”
“Cabot Properties believes there are structural forces at play around the way consumers choose to live and access food and retail.
“The pandemic did not create these, only accelerate them and they are beneficial to the industrial sector as a whole.
“We predict we will start to see real rental growth coming through in Australian industrial markets, particularly in Melbourne and Sydney, this will eventually be in line with the growth we see in other global markets such as the US and UK.”
Regional Manager – Pacific
“Australia has been in the midst of a hotel development boom and 2022 will be the peak year of hotel openings with the highest increases in Melbourne—3900 rooms, Sydney—2250 rooms, and the Gold Coast—1300 rooms.
“CBD properties are expected to see a sustained recovery as the corporate travel and business meeting segment is pivotal to helping mid-week occupancies.
“We anticipate that there will continue to be high demand for regional destinations particularly in peak holiday times which will undoubtedly flow through to achieved rates, whilst the outlook for capital cities is less clear as operators balance more competition to evolving demand profiles.”
“With change and uncertainty more prevalent in user behaviours, the year ahead will see businesses seeking more flexibility on their property commitments; especially from an office and workplace perspective.
“We are seeing continued strong growth in demand by investors in particular, for assets servicing everyday and experience-based needs such as food stuff, retail services, food and beverage and entertainment—especially in the liberated post-pandemic period.
“We have continued to monitor increases in local-based discretionary disposable income as people change their spending habits avoiding more risky international experiences.
“Overall, economic growth over the medium term is expected to be stronger than the years prior to the pandemic.”
Head of Residential Research
“Some may have felt the need to pause or delay their purchase over lockdown, but the intention is still there to ‘make the move’ to a low maintenance way of living.
“As travel is back on the agenda for many Australians, we will see a growing rise in demand for the branded residences concept and the premium willing to be paid to secure the lifestyle a hotel-led development delivers.
“Branded residences are considered a safe, high-yielding investment to lock-up-and-leave, with exceptional levels of serviceability. As this branded residence segment undergoes rapid growth and evolution, these factors will play a big part in shaping new developments in the coming years.”
“Pre-pandemic, Australia’s developers became increasingly interested in the opportunity to partner with major universities.
“Developers could see the opportunity to link commercial office, retail and residential with the benefit of campus foot traffic and the share of the international student wallet.
“Post-pandemic, universities are realising that significant benefits lie in the opportunity to raise revenue and create tangible value for the student community.”
“I think we are going to see a huge amount of activity in 2022 as there is a lot of pent up momentum across the country. In particular, the ever-strengthening in interest regional assets is set to make for a very exciting year.
“Increasing capital will flow towards the regions, not only because of the relatively strong returns, but also because many Australians are discovering how amazing these locations are for the first time, and this can only lead to long-term stability in these regional areas.
“We will continue to see the tightening of capitalisation rates on freehold hotels, motels and caravan parks. This combined with low interest rates and increased domestic tourism makes for a very exciting year ahead.”
Head of Industrial Real Estate
“With industrial vacancy rates at an all-time low of 1.3 per cent nationwide, according to CBRE’s Q3 2021 research, we can expect to see more supply constraints within key infill urban locations and further yield compression along with strong rental growth.
“Quality tenant customers are paramount to delivering value in addition to strong tenant covenants such as long-term lease and triple-net leases.
“We expect to see a continuing shift to on-shoring supply chains to ensure continuity, especially within the manufacturing market. These extends to food manufacturing and packaging products.”
Michael Di Russo
Joint Head of Property
Clean Energy Finance Corporation
“The past year has shown that despite the challenges posed by ongoing Covid-19 disruption, optimism around fundamentals prevails. Investor and capital appetite for ESG will continue to grow as retrofitting properties while considering sustainability aspects accelerates along with being considered from inception for new developments.
“Reducing the embodied carbon in materials used in the delivery of projects by the construction sector will be more of a focus for builders and developers.
“The mid-market is another area that will see further growth as demand continues to expand for energy efficiency in the built environment as developers capitalise on the ongoing recovery, delivering market leading projects that raise the stakes for sustainable buildings across the country.
“In 2022, Australia must be able to leverage its strong pandemic management position and economic credentials to be able drive recovery in our education and tourism sectors. Our assumption remains that recovery will begin in 2022 —assuming borders remain open—and begin to normalise back to 2019 levels in 2023.
“The key student recruitment and tourist markets of China and south-east Asia will rebound and we expect to see a significant volume of customers from these markets over the next 12-24 months.
“The higher ranked Australian universities will outperform their domestic peers and will lead the recovery in international student recruitment in our opinion. We also expect to see stronger demand from domestic students who have for the most part had to study online over the last 2 years, but are likely to be more and more mobile.”
“There will be increasing demand on Universities to provide both a physical and digital campus experience for students and staff.
“Strategies to shrink, repurpose or consolidate campus facilities will continue to be implemented across the sector, with a renewed focus on reducing administrative space and repurposing underutilised spaces.
“Bringing industry on campus to provide work-integrated learning opportunities for students along with research collaborations is also likely to be a key priority going forward.”