When the pandemic took hold earlier last year, the Government implemented a slew of support measures to ensure that individuals and businesses were given financial and obligatory relief to see them through the first recession Australia had seen for nearly 30 years.
Businesses were assisted into hibernation through stimulus measures including the JobKeeper Program and a mandatory Code of Conduct for commercial tenants. This legislation has ensured that tenants who run small to medium businesses with a turnover of less than $50 Million cannot be evicted during the pandemic for non-payment of rent. Landlords are also obligated to work with their tenants in good faith to fairly negotiate rental reductions proportionate to their downturn in turnover. This is coupled with the banks offering of repayment relief, lower interest rates and their avoidance in executing mortgagee foreclosures.
To date, these measures have proven effective when it comes to the impact on the commercial property market, namely because up to now there hasn’t been a significant impact at all. Commercial property prices continue to remain steady despite the fact that office buildings are dormant and our need for an office-space is no longer the necessity it once was due to the vast majority of us working from home. The cash relief that is available through incentives such as JobKeeper has also meant that businesses don’t feel the financial pressure to liquidate their assets.
The hibernation of businesses has effectively signalled a hibernation in the commercial real estate market. The distressed sales that would normally be associated with an economic recession have not come to fruition…yet.
The economic support which has been offered to these businesses is slowly being wound back. The JobKeeper program, stated as one of the Government’s most successful initiatives through the pandemic, is due to cease in just 6 short weeks. Loan relief and mortgage deferrals are also beginning to end and the temporary changes to legislation giving amnesty to business owners who were knowingly trading whilst insolvent expired on 31st of December.
As the support is withdrawn, the office buildings which are still vacant will likely be joined by retail spaces as many businesses who have survived during the hibernation come to the realisation that they survived because of their hibernation. This will signal the increase of commercial properties being listed on the market when the snowball effect is expected to take place. The removal of stimulus and support will facilitate:
- A continued decline in demand for commercial properties as working from home becomes the norm for many businesses;
- An increase in properties added to the market as mortgagees begin to worry about possible foreclosure;
- An expected drop in sale value due to the over-proliferation of the market with distressed owners wanting to offload property and release debt.
Many property owners who are in the position to do so are offloading their commercial properties’ now, prior to the downturn in the market. Conversely, investors may anticipate an opportune time to buy commercial property “post recession” due to:
- lower prices
- low interest rates
- less competition
- Commercial property remaining viable long term since the Australian property market is considered low risk overall due to a strong health system
At this stage, whilst the writing is on the wall when it comes to the downturn in the commercial property market, it really is a game of wait and see when it comes to just how hard the market will be hit and how widespread the impact will be.