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How has COVID-19 impacted commercial real estate in Australia?

By Greg Bell

The COVID-19 pandemic turned most aspects of our everyday lives completely upside down and it may take years for many of those elements to return to normal. That's certainly true when it comes to the Australian commercial real estate market; in some ways, things are already trending back toward pre-pandemic norms, but in others, conditions remain a bit unpredictable, and unmoored from traditional trends.

The good news for the market overall is that the conditions seen in the past year seem to have created a situation where investors are willing to dive back into the commercial real estate space with enthusiasm over the remainder of 2021, according to the Financial Review. That means for anyone willing to sell their existing commercial properties — and particularly those that will meet evolving demands for sustainability — will likely find an eager market.

Some caveats

With the above having been said, it does seem that as far as investors are concerned, not all commercial properties are created equal. Certain types of commercial property are becoming less sought-after, while multi-use facilities and those that are built with the intention of renting them out immediately are growing more popular.

In addition, one thing that may still take a while to recover amid the pandemic is property prices. Late last year, Theodore Connell-Variy and Tony McGough, two lecturers on the subject of property at the Royal Melbourne Institute of Technology, noted in an op-ed for Commercial Real Estate that such property prices had taken a notable hit due to the pandemic.

This poses a problem on multiple fronts for Australians at large, not just those in the commercial real estate sector, because of how tied to commercial portfolios many major superannuation funds are. Indeed, even with fevered sales activity and massive demand in 2021, it will likely take some time before prices get back to pre-outbreak averages, let alone where things would have been under normal circumstances if the pandemic hadn't happened and 2020 had been a normal year for the market.

Understanding the long-term impact

It may actually take years to fully unravel the impact COVID had on many aspects of modern life, not the least of which is how it affected commercial real estate. Transaction volumes tumbled sharply worldwide— though less so in the Pacific region — and there was particular strain when it came to hotel and retail space, according to the World Economic Forum and International Monetary Fund. While the latter had already begun to recover by the end of 2020, things were actually worsening for the former.

Interestingly, though the world has largely shifted successfully to more remote learning, the Asia/Pacific region had actually seen transaction growth in the markets for office and industrial space as of the end of 2020. Those trends may continue to shift in the near future as well, but just about any kind of growth is likely to be welcome right now.

If you are thinking of buying or selling a property you use for commercial purposes, whether for your business or to rent out to others, it's vital to fully understand the real estate landscape in your area. That's where an experienced real estate professional comes in handy: At Ray White Surfers Paradise, we will be by your side at every step of the transaction, from the moment you decide to sell through the time when all the I's are dotted and T's are crossed on your contract of sale. Get in touch with us today to learn more about what we can do for you.

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