5th October, 2020
The commercial real estate sector has never faced a bigger challenge than coronavirus, and support measures have been limited. So what will the future of commercial real estate look like?
With many businesses forced to close their doors during lockdowns and a dramatic drop in trade for many, the impact on COVID-19 on the commercial sector is unprecedented.
No matter how you look at it, the fact is that lockdowns and work from home orders have had a devastating impact on the commercial real estate sector. A large number of major companies have embraced work from home measures, introducing choice to employees. This included Google, which extended its voluntary work-from-home policy, allowing employees to work remotely until at least July 2021.
In a sign of quickly things can change, the commercial real estate sector has been widely regarded as a safe investment that offered reliable income streams. But now, as the COVID-19 pandemic forces work from home orders for all but frontline workers, weakened demand is having dire ramifications in the commercial sector.
For many retailers and small businesses occupying commercial property, it’s been hard to know what the future might hold. Many have turned to online retailing, but hope that foot traffic will return in the lead-up to the usually busy Christmas trading period.
One survey suggests that the office space will go back to normal in coming months, that the overall office footprint will shrink, with staff to continue to work from home 2-3 days a week. The workplace will no longer mean the office – it will be more of a blended, more conceptual place, distributed across offices, homes and private and public hubs, it reveals.
Conducted by commercial interior design company Unispace, the survey reveals that employees will use more collaboration spaces within the office than before, and focus work will predominantly be conducted at home.
Thousands of commercial landlords have been severely impacted by this crisis, and the full impact on the commercial sector won’t be known for some time. Hotels, retail outlets, offices and industrial properties are some of the businesses most impacted.
Now Australia’s stricken airline sector is among those pulling out of commercial real estate space. Qantas has put two buildings near Sydney Airport up for lease to cut overheads. Smaller offices in Melbourne and CBD are also earmarked for subleasing.
Some sectors seem to be faring better, and are in turn planning to maintain some if not all commercial real estate arrangements. For example, creative agency Hardhat in Melbourne has opted to hang onto an expensive, empty office for the next six months or longer, believing staff will be glad to have an office to come down once things return to normal.
There are still major projects occurring in the commercial real estate sector, too. Tech giant Atlassian has no regrets about committing to a 40-storey $1 billion flagship office in central Sydney, despite the company recently telling employees around the globe that they could work from home on a permanent basis.
Atlassian CEO Mike Cannon-Brookes was adamant in a webinar ‘Navigating the disruption of work’ recently that he would still have invested in the new headquarters if he were making the decision today, in light of the COVID-19 pandemic.
But what the future holds is hard to predict. Experts say we’re in uncharted waters, making it hard to pick just how severe the impact will be.
The Federal Government has softened the blow on commercial real estate with the national cabinet’s mandatory code of conduct and a $22 million commercial property land tax relief package, which enables landlords to access land tax concessions of up to 25 percent if they pass on savings to tenants by discounting rents.
In Victoria, the government extended its moratorium on commercial tenancy evictions and rent increases until the end of 2020, banning evictions until 31 December.
With the Federal Budget being handed down tomorrow night, operators in the commercial real estate sector will be hoping to hear of further support to come.
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