Australian Real Estate: Predictions to drive better outcomes in 2021
Ado van Rensburg, Ansarada’s Senior Real Estate Account Executive, analyses the impact of the pandemic on real estate sectors in Australia and the market trends we’re likely to see going into the new year.
Based on the Ansarada Platform Indicators data, the effects of COVID-19 and specifically, interstate border closures, have definitely had an effect on activity in the Real Estate market.
Unlike in the 2008 GFC - where capital became scarce and loan reviews made for a mad scramble - COVID-19 saw the transactions stalled, not the ability to buy.
The 32% drop in our transaction volume in the RE space over the past 12 months (to October) aligns to what agencies in the market have been confirming in terms of volume. Data from Colliers International’s Office Middle Markets (End of Year Review: Jan - Nov 2020) shows a 53% reduction in sales transactions, and a 54% decrease in capital investment in the sector.
How have different Real Estate sectors been impacted?
Demand and desire to purchase property is still as strong, although the love for Retail has taken a stumble; the retail assets still trading well are those that anchor around necessities, especially in regional areas.
Industrials have continued to see the most activity and demand, continuing its pre-pandemic trend due to the major online shift of the last decade.
There has been an uptick in Residential activity in some states, most notably when the Federal Government announced the renovation stimulus in June. It’s believed the abolishment of Stamp Duty in NSW and reductions in VIC will have a significant effect on the Residential market as well, as this will provide 5% of capital to the deposit rather than the dead Stamp Duty. Whether this will be enough to stem the lack of immigration inflow and demand (which has historically driven property prices in Australia), only time will tell.
The Office sector was also noticeably impacted, with office occupancy levels below or around 50% across major markets as at July 2020 (Colliers International).
In most instances, Real Estate buyers will want to ‘touch & feel’ the asset – and in a Retail sense, understand the atmosphere and activity. The State Border closures have massively affected their capability to do this. Even more so than the international border closures which have affected the flow of offshore capital into Australia, but not to the same extent as the internal border closures.
Property is a contact sport
Despite some assets still trading well under the circumstances, there has been a stall due to the concern of getting enough – or perhaps the right – buyers willing to transact site unseen. Again, the border closures and lockdowns, in particular the closure of Queensland borders and the extended Victoria lockdown, have had a significant impact.
What lies ahead
The September numbers below paint quite a scary picture and show a 10% drop in the previous six months activity, where the October numbers above actually offer a 47% increase. The increase is indicative of lockdowns starting to ease, inspections becoming possible again, and then the burgeoning hope that Premier Annastacia Palaszczuk will open the borders post-election.
The Office sector - in most of the sessions I have attended for the Occupier side of the market there has been an exciting tale of consolidation around office space, struggles in addressing social distancing and questions around what the workplace is going to look like in the future. Efficiency is a focus; for example, with temperature measuring cameras linked to access gates/doors, etc.
Whichever way you look at it, the lockdowns (although they do appear to work in dampening the spread) are damaging to the economy and specifically the Real Estate sector. But it is the interstate border closures (rather than full martial law lockdowns) that I believe are having the most significant adverse effect, as they effectively put a pause on the market.
Those affected will sell. Those with prime assets or who do not need to sell can sit on their assets until the borders re-open, as we are starting to see now.
The timing for most of this concerning the Victoria outbreaks and continued Queensland border closures for the Real Estate sector has not been great. Many deals have shifted to next year as launching a campaign this close to December might not be ideal. The shift reflects the overall drop in activity. The jump from September to October is indicative of those intending to get in and close out any transactions before the holiday shutdown period.
When can we expect to see activity normalize?
While we have not seen a higher-than-expected component of insolvency-based sales come through yet, the government moratoriums end soon. There is a mixed view in the market on whether there will be a significant uplift in insolvency activity, which will reveal itself early in 2021.
The easing of activity will directly affect every state’s revenue numbers through reduced direct and indirect taxes.
But Real Estate is not a day trading asset class; it doesn’t move in minutes but multiple seasons and years. The current status is a temporary position and will be changing by Feb 2021. I am excited about the advances happening around the workplace and the enablement of technology in buildings. As Colliers International’s report shows, market confidence is already increasing, and the expectation is that sales volumes will increase significantly in the second half of 2021.
Let’s hope the vaccines bring back some normality and that border closures are a thing of the past, so we can all look forward to some international travel by the end of next year.
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Ado van Rensburg is Ansarada’s Senior Real Estate Account Executive, with more than 15 years experience in multiple aspects of the Real Estate Sector, holding a Masters of Business in Property from USQ.Ado van Rensburg, Senior Real Estate Account Executive, Ansarada