Slow and steady: The commercial market to run its own race in 2021

24 February 2021

By KIRSTEN CRAZE

It’s easy to see how COVID-19 has negatively impacted the commercial real estate space, but new data shows CBD workers are slowly, but surely, making their way back into the office.

The latest CBD occupancy survey compiled by the Property Council of Australia found that Sydney’s office market is gradually regaining ground in the wake of the coronavirus pandemic. By December 2020, occupancy rates had reached 45 per cent (up from 40 per cent in October). Although the data is positive, industry insiders say there is still plenty of work to be done to reach levels near Sydney’s 94 per cent occupancy prior to the COVID-19 outbreak.

Ken Morrison, chief executive of the Property Council, said the survey results were promising.

“As we start the new year it is encouraging to see so many CBD workers coming back to their offices to enjoy the benefits of face-to-face connections and collaboration,” he said.

“While we have a long way to go to get back to pre-COVID levels, increased CBD occupancy is a godsend for the thousands of businesses that rely on bustling city centres to survive.”

Mr Morrison said there was now a “growing impetus” for people to come back to their workplaces as NSW public health restrictions are scaled down.

“The mission for policymakers, employers, and the property industry over the coming months will be to maintain momentum and ensure our CBDs return to full activity as quickly as possible.”

Back to the negotiating table

Bobby Suminoski, Director of Four Walls Commercial and REINSW Commercial Chapter Chairman, said that given the effect of the pandemic in 2020, clients with commercial assets need to be open-minded.

“They should also ensure that any renewals and new agreements are satisfied in order to protect themselves from extended vacancy periods. This may also include assistance in relocating to smaller or more efficient spaces, or potentially relax terms and flexibility in subleasing or assigning existing spaces.”

He added that owners and agents will need to be more creative and adaptable in 2021 to maintain their occupancy levels.

“In my recent experience, a lot of businesses and tenants are questioning whether they’re going to renew their leases or downsize. I feel most owners will be flexible for the short term in order to assist their valued tenants through the recovery period,” he said.

“Despite the disruption the pandemic has caused, demand for commercial property as an investment is still very strong. Investors are still looking for safer investment vehicles with good returns, something property has always provided. Interest rates are now at historical lows, and the uncertainty in financial markets and stocks over the last year means people are still finding comfort in bricks and mortar,” he added.

A new way of doing business

Helen Storey, National Portfolio Manager of Commercial and Industrial Property Assets at CBRE, said there had been innovative ideas bubbling behind the scenes in commercial property pre-pandemic, but COVID-19 had pushed them to the forefront.

“I suppose it's brought things forward that were already on the back burner, or products that might not have been of interest to some landlords previously. There are apps that have been developed specifically for landlords, which provide announcements around what's happening in the building including events, specials with participating retailers, or emergencies. Tenants can book their dry cleaning, or fitness classes, they can even get food from the downstairs lobby brought up to their desk. This sort of technology has really put employers’ minds at ease. And landlords can be happy that the communication is there in the event of an outbreak of COVID-19 in their building or locality,” she said.

“These might not be the cheapest of innovative products out there, but many have seen the value in them now. There’s a need to be able to communicate effectively because tenant engagement is so important. These tools are basically the ultimate way of engaging with tenants, and they can collect data too so you can see which offers, events and announcements are getting the most hits," she said.

Ms Storey, who is also a committee member with the REINSW Commercial Chapter, added that other innovative steps that landlords have recently adopted are very pandemic-specific.

“A lot of the premium buildings are looking at touchless entry so that everything is run from mobile phones and no one needs to actually physically touch anything in the building,” she said.

The future is bright

Concerns over the mass movement of employees working from home will begin to even out, Ms Storey said.

“I think everyone's getting used to working in the COVID world now. The additional flexibility that businesses have adopted has been a great thing, but I think as time goes on there isn't going to be the big change everyone thought it was going to be,” she said.

“So far this year, our commercial guys are busier than ever. Admittedly, it's harder to do a deal, and deals are not being done like they were a couple of years ago, but there's a lot of activity. It's not all doom and gloom,” Ms Storey said.

The end of the JobKeeper subsidy in March and the fallout from the conclusion of rental support for tenants (which officially ceased on December 31) will further impact commercial property.

“Agents should be talking to their peers and keep their finger on the pulse of what's happening out in the market because everyone will deal with things very differently, every landlord’s position is different,” she said.

“Some large-scale owners will be able to absorb the costs of all this, but many private landlords are probably just unable to. It’s been really hard on some. I think it's just a matter of taking every day as it comes and really following the NSW Code of Conduct," she said.

“Property managers need to be focusing on relationships, client engagement and education. Over-service, over-deliver, be reliable, be positive and be consistent. Don’t be afraid to share your information, do cross referrals internally or with other businesses and support each other. The more transparent and genuine you are in this kind of market, the better off you're going to be,” she said.

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