The Current State of The Commercial Property Market – And it’s future

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The Current State of The Commercial Property Market – And it’s future

One property sector that continues to feel the pressure of the lockdown is Commercial property landlords and investors, as businesses struggle to make rent as they feel the pressure from lockdown rules.

Here’s what you need to know:

Effects of Covid-19 on Commercial Property Sector will be Felt For Some Time

A report on REITs (Real Estate Investment Trusts) in New Zealand and Australia, S&P said the fallout from COVID-19 on the commercial property market “could last longer and deeper” than the current lockdown period, with the report stating that “Shopping centre landlords will be hardest hit,”  as retailers demand rent waivers, deferrals, or concessions to ride out a recession due to the pandemic. The biggest threat to landlords will come as business implement ways to survive, including “Cost-cutting, staff reductions, and changing work patterns.”

However there was a  was also a bright spot in the report, which said a boost in online orders could prove to be a boon for landlords with premises such as warehouses used by logistics companies, because of the increased volumes they were likely to be handling. There was high potential in this particular corner of the commercial property market as warehouses and logistic centres could become more sought after in a post lockdown world as businesses see more success in online shopping.

experts, however, have suggested that both landlords and Tenants may need to think of new ways of calculating rents for their properties in the post-lockdown world. Adrian Chisholm, a director of Tourism Property Brokers, which specialises in the sale and leasing of tourism and hospitality-related businesses and properties, says both landlords and tenants may need to start thinking of rent as a variable cost, based on the tenant’s turnover, rather than a fixed cost.

investors Could Move Back to Residential Property

Many investors initially moved to invest in commercial property in the last two years after uncertainty around changes in the residential property market brought on by the change in government, but this could soon change as residential property becomes more attractive again in a post-covid landscape.

The factors that will act as drawcards for investors will most likely come from potentially losing faith in the commercial property market, as many business tenants may move to working from home, will seek long-lasting rent reductions, or simply cannot afford current rents and vacate their premises. In addition to this, Interest rates have continued to fall in response to the pandemic, the Reserve Bank dropped the Official Cash Rate (OCR) on 16 March to a record low 0.25 percent from 1 percent – the lowest point since the cash rate was introduced in March 1999 in an attempt to support the economy against the impact of the Covid-19.

Experts predict that in response to the OCR and the Covid-19 outbreak, the interest rates are likely to stay low for three to five years. Low rates not only improve affordability for owner-occupiers like first-home buyers, they also encourage investors away from term deposits (eventually) toward other assets, like shares and property.

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Daniel Vernon