At the top of the list is the way COVID-19 has accentuated so many of the trends which drive real estate demand, from e-commerce and omnichannel retail to working from home.
At the height of the pandemic, more than a million tenancy agreements, residential and commercial, were in negotiation, with rents forgone, reduced or in dispute.
The real estate managers handling negotiations had to deal with distressed tenants, cash-strapped owners, a new commonwealth government code, state regulations and the complexities of JobKeeper. And, because most managers are paid on a percentage of rent, their revenue was falling.
“I have never worked so hard to cut my income,” says Paul Byrne, a director of LJ Hooker Commercial Bankstown in Sydney’s west.
The property industry was not in the front line of the pandemic. But every sector of the industry, from agents to builders to consultants, investors and financiers, faced, and generally overcame, a unique set of challenges in 2020.
Now we are all looking forward to a better 2021. But for the last column of the year, I would like to reflect on the lessons of 2020. Some point to the new year.
“Technology is changing the way we use real estate,” says Andrew Parsons, the executive director of global real estate securities manager Resolution Capital.
Technology is one driver of the increasing differential in real estate investment trust performance from sectors such as retail and office to logistics, housing, data centres and health. All REITs are no longer the same, particularly when it comes to the heart of the sector’s offering – regular distributions.
Investors have long recognised the threat of online retailing to the big shopping centres.
Even though shoppers are returning, and the stock prices of malls have risen from their COVID-19 lows, most analysts see further challenges to rental levels and long-term repositioning.
The bigger surprise of 2020 was the vulnerability of the CBDs. The office towers emptied, in what was a successful short-term experiment in working from home, and life in the CBDs ebbed away.
The buzz is returning to Martin Place, but how much life will return in the medium term is an open question. For every business leader who demands a return to the city office, another endorses a hybrid operation to allow for remote working. In the meantime, as tenants shed unwanted office space, the vacancy rates are rising.
The pandemic has also spurred interest in real estate tech, according to Jonathan Hannam, the managing partner of Taronga Ventures, which invests in real estate technology and innovation.
In the first half of the year, Hannam says, the focus was on technology that delivered health and wellness solutions, construction safety, and process digitalisation, especially for remote access. More recently the focus has shifted to energy and sustainability and the creation of new streams of revenue, particularly in retail.
In the construction industry, the challenge was to meet the COVID-19 guidelines, stay on-site and keep building. Schedules had to be re-engineered, even changing basics like the number of workers in a lift cage.
Builder Roberts Pizzarotti pioneered new ways of flexible working, asking its engineers, contracts administrators, design and project managers to use technology to work off-site every second day.
“Sure it’s had its challenges ... but our jobs kept moving, we increased the number of workers on site and we kept everyone safe,” says chief executive Alison Mirams, pointing to the recent completion of the Zurich tower in North Sydney five weeks ahead of schedule.
She hopes that clients continue to focus on the health of construction workers, including through the adoption of a five-day working week, and she hopes that the “magnificent” (but now challenged) COVID-19 collaboration between contractors, industry bodies, the Master Builders Association and the unions can continue.
Nevertheless, the pipeline of new commercial work for 2021 is contracting. Mirams hopes that clients don’t respond by simply squeezing margins even further.
“Let’s treat contractors and the entire supply chain with respect and fairness so that together we can develop a sustainable industry for everyone,” she says.
The big surprise was in housing where, with the notable exception of The Australian Financial Review’s contributing editor Christopher Joye and veteran analysts like Charter Keck Cramer chairman Scott Keck, the forecasts at the height of the pandemic promised significant downturns in prices and construction.
The solid improvement in mortgage availability and pricing, coupled with the turn in sentiment, the government handouts and a COVID-driven move out of smaller homes, has worked the trick, and not only for first home buyers.
The recovery, along with the Callaghan review of superannuation, has revived the house-ahead-of-super lobby. I hope it passes. Additional money for housing simply adds to prices.
As usual, housing is not uniform. The collapse in immigration and foreign student numbers has driven up the vacancy and forced down the rents for many inner-city apartments.
At the same time, two trends have driven up regional prices, with pent-up discretionary spending boosting resort prices and affordability, along with the increased ability to work remotely, driving demand in the stronger regional centres.
Today’s graphic, from Airbnb’s Securities and Exchange Commission filing ahead of its IPO, points to the relative strength in smaller locations globally as “guests seek more remote destinations outside crowded urban centres”.
Simon Pressley, the founder of Propertyology, a buyers’ advocate and one of the first to tip the strong price surge in Hobart, expects the rise in regional centre rents, up to $5000 a year in some centres, will be the most important story for Australian real estate in 2021.
Unlike most analysts, Keck does not think COVID-19 will have a lasting effect. Online retailing, working remotely and the trend of moving to regional centres were all happening before COVID-19 and will continue in its aftermath.
At the same time, the pre-COVID-19 problems of underemployment, stagnant wages and low productivity will re-emerge, exacerbated by the pandemic debt burden. But that’s for the future.
Thanks for your support in 2020. All the best for 2021.